Key Points
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Some investors may be leery of entering the market near a record high, fearing overpaying.
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The bigger risk, however, remains being out of the market when you should be in it, rather than the other way around.
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Stocks may well suffer a setback in the foreseeable future, but even if they do, it won’t last forever. Stocks always eventually recover and move to new highs.
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Most investors agree with the most basic of investing advice. That is, “buy low, sell high.” On the other hand, most veteran investors also know that stocks can continue rallying even when they seemingly shouldn’t.
That’s a conundrum everyone’s facing right now. The S&P 500 (SNPINDEX: ^GSPC) and its corresponding funds, like the Vanguard S&P 500 ETF (NYSEMKT: VOO) or the SPDR S&P 500 ETF Trust (NYSEMKT: SPY), are back within sight of record highs reached in early June. It still feels like we’re overdue for a full-blown correction. But there’s also no denying the persistent bullishness hints of more gains ahead. What should investors do?
Hold your nose and dive in anyway.
The numbers
It’s admittedly easier said than done. Nobody wants their portfolio to suffer setbacks that could potentially be avoided.
Just keep things in perspective, and keep your time frame in mind. Your bigger risk isn’t being in the market at the wrong time. It’s being on the sidelines and missing out on too much of the market’s inherent bullishness.
Numbers crunched by investment manager Invesco tell the tale. From 1995 to 2025, an initial investment of $100,000 in the S&P 500 (or an index fund like VOO) would have grown to just over $1.9 million, if you reinvested dividends. If that holding had missed out on just the market’s 10 biggest single-day gains during this 30-year stretch, however, the value of that investment gets dialed back to only $855,000. That’s less than half of what you would have earned by simply remaining in the market. And if you missed the 20 best days during this time frame, your holding would be worth about half a million dollars.
Sure, sidestepping the stock market’s worst days could help. The problem is, you don’t know when those worst days are going to materialize any more than you can know when the best days will. Trying to guess either is a strategic mistake.
See, the S&P 500’s biggest single-day gains often occur right around the same time — and even in conjunction with — its worst days, all of which are largely unexpected. And even the big winning days that aren’t linked to big single-day setbacks often materialize at unexpected times. For example, according to research done by mutual fund giant Hartford, since 1996, nearly half of the market’s best days happened during bear markets, while more than one-fourth of them took shape in just the first two months of new bull markets … when you would have been unlikely to trust that such moves were evidence of a long-term recovery.
At another record high for a reason
Of course, we’re neither in a bull market nor a correction right now. The point is still the same, though. That is, without knowing what any given day holds for stocks, your biggest risk is being out of the market and missing out on its long-term gains.
Or, think about it like this: The fact that the S&P 500 is currently at record highs makes it clear that it can — and does — continue making gains even after all-time highs are reached. Even if the market peels back after you step in, that weakness isn’t going to last forever.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
