INSIGHTS

On November 27, 2017

Investing at Record Breaking Highs

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It seems every time we turn on the TV, some news anchor is talking about the S&P 500 Index posting another record-breaking close. This is understandable, since the S&P 500 has had 55 record-breaking closes year to date through 11/17/2017. That’s about one out of every four days. There hasn’t been a 3% or greater pullback in all of 2017. The current bull market is coming up on its ninth birthday (3/9/2018). It’s getting a little long in the tooth, and it’s understandable if anyone is starting to feel hesitant towards equity investing. So let’s explore what history tells us about investing at market highs. Is it possible to make money, or does the timing of buy decisions really matter?



Rather than creating an enormous table of the S&P 500’s record highs over the past 50 years, I’m going to focus on few milestones.








Data source: Bloomberg. Past performance does not guarantee future results. It is not possible to invest directly in an index.




The table details a lot of positive returns, but let’s focus on the far right column. That column shows annualized total returns from the day of the milestone, to the day of my writing (11/17/2017). There’s a positive number in every row. Meaning, an investment initiated on the day of each milestone and held until the present (11/17/2017), made money even though we entered the market at an all-time high. This supports the phrase, “Time in the market is more important than timing the market.”



While many of the rows in the far right column show robust annualized returns, there are a few notable laggards more specifically, the highs set during the dot-com bubble but they are an anomaly. This period is often referred to as “The Lost Decade.” Analyzing U.S stock market data from 1871 to present, over any rolling 5-year period, the market had a positive return 79.5% of the time (Shiller, Robert J). If we look at rolling 10-year periods, the U.S. stock market had a positive return 87.8% of the time, and for rolling 20-year periods, the market had a positive return 99.9% of the time (Shiller, Robert J). The data set uses real returns, meaning they were adjusted for inflation. If an investor were to have invested on any day included in the Shiller data set, and held onto their investment for 5, 10, 20 years, the probability they made money is quite high.



Another thing to note regarding record highs, they are all the same. The all-time high set during the dot-com bubble and the one set prior to the 2008 financial crisis, only gained significance through the power of hindsight. When they occurred, they were no different than any other previous record high. I included them to point out that it doesn’t matter if an investor bought at the worst possible time, they would likely have made money given a long enough time horizon. We believe it’s not about when someone invests, it’s about how much time they invest, i.e. length of the time horizon.




Works Cited
Bloomberg.

(2017) Bloomberg Professional. [Online]. Available at: Subscription Service (Accessed: 17 November 2017)




Shiller, Robert J “U.S. Stock Markets 1871-Present and CAPE Ratio.” Princeton University Press, 2000.



CRN: 2017-1106-6245R

This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at commentary-disclosures. For additional commentary or financial resources, please visit www.aamlive.com.