Is it a good time to invest when markets are at all-time highs?

Last Updated: 18 November 2024

Despite notable challenges across the world this year, many stock markets have recently hit all-time highs. To name a few, stock markets in the US, Germany, Spain, Australia, India and Canada all hit successive highs.

Many investors often feel anxious when stock markets reach record highs. It’s natural to think that prices can’t continue to rise indefinitely and that a sharp correction is imminent. But is this mindset actually helpful? In reality, the answer might surprise you.

Understanding market highs

When markets hit all-time highs, it doesn’t necessarily indicate that equities are overpriced or that a downturn is imminent. In fact, it could be a sign that the system is functioning as expected.

Equities are ownership of companies’ earnings and dividends. As businesses continue to grow and innovate, their stock prices tend to rise, and it’s not unusual for markets to reach new highs over time.

Indeed, looking at the monthly closing level of global stock market from 1970 to 2023, all-time highs were reached 29% of the time. In short, it’s not uncommon for all-time highs to be reached.

So what has happened after markets hit their peaks?

This graph from Dimensional Fund Advisors shows the MSCI World Index’s (the global stock market) average annual return 1, 3 and 5 years after markets hit an all-time high versus periods that ended at any level.

As you can see, the figures are very similar. This suggests that market highs don’t necessarily signal an impending crash.

The myth of “buy low, sell high”

Many investors subscribe to the “buy low, sell high” philosophy, thinking that purchasing equities at a high point guarantees future disappointment. However, historical data shows otherwise.

Research by Dimensional Fund Advisors found that purchasing equities at all-time highs often leads to similar returns over the following one, three, and five years as buying a sharp decline. The performance doesn’t significantly differ whether the market is at a peak or a trough.

	1 year later	3 years later	5 years later
After new market high	13.9%	10.5%	9.9%
After 20% market decline	10.5%	9.9%	9.6%

Long-term trends over short-term movements

It’s crucial to focus on long-term trends rather than short-term fluctuations. Market declines happen around 28% of the time, so historically, 3 out of every 4 years have been positive, regardless of these periods being punctuated with all-time highs or not.

Confidence in the system

The key takeaway is that equity prices don’t follow the laws of physics, where “what goes up must come down.” Instead, they are driven by the expectations of future profits and dividends, which are continually being reassessed by millions of investors. Therefore, record highs don’t always reflect an unsustainable bubble but rather the ongoing potential for growth.

As investors, it’s important to stay focused on your long-term investment goals. Whether markets are high or low, the aim should be to invest wisely, diversify your portfolio, and stay invested to take advantage of the long-term growth of the market. For those considering some help, seeking expert investment advice from an independent financial adviser in Cirencester can help guide your investment decisions.

Need help with your investment strategy? Contact our expert independent financial advisers in Cirencester today to discuss how we can help you make the most of your investments

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Investment risk information

Please note, the value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

This information is for general information only and does not constitute advice. The information is aimed at retail clients only.

Past performance is not necessarily a guide to future performance.

Frequently asked questions

Should I invest when markets are at an all-time high?

Investing at market highs can feel risky, but timing the market is notoriously difficult. A solid, long-term investment strategy can help mitigate short-term volatility. For tailored strategies, seek investment advice Cirencester at Abode Financial Planning.

Is it better to wait for a market correction before investing?

It is impossible to know exactly when a market correction will be. Waiting for a correction can result in missed opportunities but any investment should be driven by your personal plan, rather than market timing. Markets often trend upward over time, so a well-diversified, disciplined approach is usually more effective.

How do I reduce risk when investing at market peaks?

Diversify your portfolio; investing in stages (pound-cost averaging) can help too, but this may not be suitable for everyone. Aligning your strategy with your financial goals is the best place to start. An independent financial adviser can guide you through this process.

Should I adjust my portfolio during market highs?

It’s always important to ensure your portfolio aligns with your risk tolerance and goals, regardless of market values. For expert insights, consider investment advice Cirencester with Abode Financial Planning.

What is pound-cost averaging, and how can it help with my investments?

Pound-cost averaging involves investing a fixed amount regularly, regardless of market conditions. This approach reduces the impact of short-term market fluctuations.

Are there investment opportunities during market highs?

Yes, opportunities always exist, even during market peaks. Focus on the long-term and ensure investments align with your goals and risk profile.

How do I avoid emotional decision-making when markets are high?

Stick to your financial plan and avoid reacting to market news. A trusted independent financial adviser can help you stay disciplined and focused on your long-term goals.

Is now a good time to rebalance my investment portfolio?

Market highs might skew your asset allocation. Rebalancing ensures your portfolio reflects your risk tolerance and financial objectives. It’s advisable to understand the tax position of any portfolio rebalance.

How do interest rates affect investing during market highs?

Rising interest rates can impact certain investments, such as bonds and growth stocks. Understanding these dynamics can help you make informed decisions.

Do I need professional advice when investing at market highs?

Navigating market peaks requires expertise to manage risks and identify opportunities. Seeking investment advice ensures your strategy is optimised for the current market environment.

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Abode Financial Advisers is an Independent Financial Advisor in Cirencester.

Abode Financial Advisers is a financial adviser based in Cirencester, Gloucestershire. Abode Financial Planning is an independent financial advice firm offering comprehensive financial planning services, including: independent financial advice, retirement planning, pension advice, investment advice, wealth management, and inheritance tax planning.

If you wish to discuss your situation, contact us for a no-obligation initial call, held at our expense. Call us on 01285 703 060.

Abode Financial Advisers is located at Watermoor Point, Watermoor Road, Cirencester, Gloucestershire, GL7 1LF.