The S&P 500 hit another record high yesterday, the 56th time it has done so this year.[1] With the stock market at all-time highs, what should you do? Will stocks fall now that they peaked? After all, if you climb a mountain and reach the top, your next move is to turn around and come down. Sir Edmund Hillary and Tenzing Norgay spent about fifteen minutes atop Mount Everest before they headed for home.[2]
A climber who is descending gets vistas not afforded to them while ascending. A descent allows the climber to reflect on their climb and focus on more mountains to conquer. When the next stock market correction arrives, use it as an opportunity to buy quality companies at lower prices. A market drop can open your eyes to new opportunities not seen while stocks were climbing.
Should you buy at all-time highs? Let’s review a few previous market tops.
- October 1928. If you purchased stocks at this peak, your average annual return was 10% despite the stock market correction in October 1929 and suffering through the Great Depression.
- August 1987. If you purchased stocks at this peak, your average annual return was 7.95% despite the stock market correction on October 19, 1987.
- December 1999. If you purchased stocks at this peak, your average annual return was 5.35% despite the Tech Wreck from 2000 to 2003.
- October 2007. If you purchased stocks at this peak, your average annual return was 7.62% despite the Great Recession’s impact.
- February 2020. If you purchased stocks at this peak, your average annual return was 22% despite the COVID correction in March 2020.
The average return from the above peaks is 10.5%, which is impressive considering you bought stocks at the “worst” time. A $100,000 investment earning 10.5% per year for the next two decades could be worth more than $736,000.
I would encourage you to remain invested even though stocks are trading at all-time highs. Follow your plan, think long-term, and good things will happen.
I take all day to climb mountains and then spend about 10 minutes at the top admiring the view.” – Sebastian Thrun
Bill Parrott, CFP®, is the President and CEO of Parrott Wealth Management in Austin, Texas. Parrott Wealth Management is a fee-only, fiduciary, registered investment advisor firm. Our goal is to remove complexity, confusion, and worry from the investment and financial planning process so our clients can pursue a life of purpose. Our firm does not have an asset or fee minimum, and we work with anybody who needs financial help regardless of age, income, or asset level. PWM’s custodian is TD Ameritrade, and our annual fee starts at .5% of your assets and drops depending on the level of your assets.
Note: Investments are not guaranteed and do involve risk. Your returns may differ from those posted in this blog. PWM is not a tax advisor, nor do we give tax advice. Please consult your tax advisor for items that are specific to your situation. Options involve risk and aren’t suitable for every investor.
[1] Charlie Bilello – Twitter 10/25/2021
[2] http://www.history.com/news/7-things-you-should-know-about-mount-everest, Jesse Greenspan, May 29, 2013, accessed August 12, 2016.