Don't fear All Time high - Weekend Investing

There’s a fascinating chart that shows the S&P 500 index over the last 70-80 years. This chart highlights the days when the market reached all-time highs and how the market performed afterward. The common fear is that investing at an all-time high means you might get stuck if the market drops. But data suggests otherwise.

All-Time Highs vs. Any Day Investment

The chart shows that if you invest at an all-time high day compared to any other day, the outcomes are surprisingly positive. Many people worry about investing at market peaks, fearing losses. However, the data for lump sum investing or systematic investment plans (SIPs) proves that you can do very well, even if you start investing at an all-time high.

Historical Performance of the S&P 500

For instance, studies on the Nifty index and the S&P 500 show similar trends. If you invest on a new high day, your returns over one year, two years, three years, and five years are often better than if you invest on any other day. The data reveals that investing on an all-time high day over five years yields an average return of 79%, compared to 73.8% on any other day. This clearly shows that fears of buying at the top are often unfounded.

Overcoming the Fear of Market Peaks

This should help break the myth that investing at market peaks is risky. Yes, there might be times when the market stagnates or drops, but historically, the market has shown strong returns over time, even from all-time highs. This pattern holds true for the S&P 500 and likely for other markets, including the Indian market, even though we may not have as much data.

The Psychology of Investing at Highs

Many people sell stocks when they hit all-time highs, thinking it’s the peak. However, momentum investors and savvy traders often buy at these points because a stock reaching an all-time high can signal further growth. While there’s always a risk of a peak turning into a drop, more often than not, buying at an all-time high provides an opportunity to sell at an even higher price later.

We need to change our mindset about rising prices. Don’t fear prices going up; fear prices going down. If a price is moving in your favor, that’s a good sign. Conversely, prices moving against you are a cause for concern. This psychological shift is crucial for successful investing.

Check out the detailed video on the WeekendInvesting App