Don’t fear stock market all-time highs

As we reach the end of autumn, let’s look back on a momentous event that occurred 70 years ago this fall — the 1929 stock market crash that ushered in the Great Depression.

After that crash, stocks in the Dow Jones Industrial Average did not return to their earlier 1929 levels until 1954; that’s more than 25 years from peak to peak. Of course, the numbers don’t include dividends, which were much higher back then, but the point remains that there can be long droughts when stocks meander and don’t post higher highs.

These days, we’re looking at a stock market that has hit more than 20 new highs in 2019 alone. Should we be worried?

One of the hardest parts of investing in the stock market is that there is always something to worry about. This is true even when things are going well, as they are now with markets at or near all-time highs depending on the day.

A worry that we hear among some of our clients is that markets are “due” for a return to normalcy and that it doesn’t make sense to get in the market near all-time highs.

Here’s a quick history lesson to put that worry to rest: Since World War II, the stock market has spent nearly 40% of the time within 5% of all-time highs, while 54% of the time, stocks have closed within 10% of an all-time high.

All-time highs tend to cluster as strong performance begets even more strong performance in the markets. Rising markets attract more buyers because investors are human.

So, don’t be afraid of all-time highs. Embrace them. Following an all-time high, stocks are up roughly 70% of the time going out one, three, and five years into the future.

Eventually, of course, one of these all-time highs will remain in place for some time. But don’t let that deter you, because it’s impossible to predict with any degree of certainty which one that will be. If you plan on being in stocks for the long term, which is basically every investor (including most retirees), then you’re going to need to get used to the fact that stocks mostly go up over time and new highs are completely normal.

While we remain vigilant against the threats that another monster downturn poses to our clients’ portfolios, it’s important to embrace the uncertainty and let a rising stock market do what it has done so well for all these years–create wealth for you and your family.

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