Determining the best time to invest your hard-earned money in the stock market can be a daunting task.
The general advice “time in the market surpasses time in the market” is easy to say, but when stocks are as they are today, it is difficult to follow when stocks trade at high places in their history. exist S&P 500' (snpindex: ^gspc) Since reaching the bottom of the bear market in 2022, an incredible 70% of the time. For some, it may feel like another bear market may be approaching. After all, every bear market starts at a new high.
Investors who missed 70% of stock price gains may sit off the market and wait for the bear market to go to work before they can go to work. So far, investors who manage to keep investing may feel that they are seducing their destiny and consider taking some money away.
But history has a clear answer to investors, because investors want to know if it is a wise idea to put your money into stocks now.
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The basic idea behind investment, especially investing in a broad range of index funds, is the value of stocks that increase over time. Economic progress and expansion are not always a stable parade, but they usually move forward. Therefore, the profits of the companies that make up the economy continue to grow and their stock value increases.
Therefore, even if the stock trading volume reaches an all-time high, future expectations should allow the stock to set higher highs in the future. Unless there is good reason to expect the slowdown to negatively affect the revenue and cash flow of the businesses operating therein, stocks will continue to rise in a short period of time.
Indeed, new all-time highs tend to gather together. This is indeed the case since the market set a new all-time high in January last year. About 13 months later, the index closed with a new all-time high of 58 times.
If you invested in the S&P 500 Index Fund when you first set a new all-time high in 2024, your funding will grow by about 26% as of this writing. Although this is an amazing return, it may just be the beginning of this market. The median bull market lasted for 46 months. This gave us about a year and a half until the current bull market reached 50 percentage points.
More importantly, despite experiencing strong returns in the first two years of the current bull market, they are not entirely unusual. The median total return for bull markets was 110%, most of which occurred in the first half of the previous bear market recovery. This suggests that the S&P 500 can climb another 23% from here, which is still a normal bull market.
It is important to put your money into the market without even waiting for a slight pullback in stock prices. In fact, waiting for a higher price may hurt your returns. Data Compilation JP Morgan It was found that the three-month, six-month and 12-month returns were relatively small in history since 1970. Over the following two years, the average return was 20%, while among investors who were not full-time, the average return was 18%.
Remember, this is an average return of two years. The returns obtained by investing at an earlier historical climax will be greater, while the returns of the most recent high marks may be negative. Therefore, it is not unreasonable for investors to expect a return of more than 40% in two years. As mentioned earlier, stocks are only up 26% from their all-time high in January last year.
It is much harder to invest when a stock is trading at an all-time high than to find a good investment when the stock is approaching a relative low. Patient investors have many opportunities deep in the bear market. Looking for stocks after a strong bull run requires more careful consideration of what you are buying.
This is especially true in this bull market, where investors see stock prices rise faster than the fundamentals of many of the largest companies. The S&P 500 index trades at 22.2. This is much higher than its long-term valuation, while the largest companies (such as the “Magnificent Seven)” trade at higher revenue multiples. While this does not necessarily mean they are overvalued or the entire market will collapse soon, it does mean investors need to be aware of the potential risks and upside potential of these prices.
So you can invest in a simple S&P 500 index fund Vanguard S&P 500 ETF(nysemkt: voo). This is a good choice, and history shows that the index has a lot of growth. With low fee ratios and a firm tracking of the index history, you will surely get the share of the returns of the vast market. History shows that these returns can also be huge.
But if the valuation of the largest companies in the market is your concern and you want to be smarter about your investment without picking individual stocks, you can buy the equivalent S&P 500 index fund Invesco S&P 500 Equal Weight ETF(nysemkt: RSP). Index funds invest in every component of the S&P 500, which reduces the concentration of large, high-value stocks that have led the market over the past two years. This alternative has historically outperformed performance in the long run, but at some periods it fell on the traditional upper-weighted index.
When stocks trade at the highest price all-time high, there are dozens of ways to invest your money. Rarely stay on the scene for a long time for a long time. However, taking the time to be cautious about your investment choices should also enable you to do well, even if the market goes into a downturn.
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Adam Levy has no position in any of the stocks mentioned. Motley Fool has a place and recommends the Vanguard S&P 500 ETF. Motley Fool has a disclosure policy.
Is it smart to buy S&P 500 stocks at an all-time high? History has a clear answer, originally published by Motley Fool
