Scared of investing when the stock market is at an all-time high? You shouldn’t be

Is it a good idea to invest when the market is at an all-time high? Be led by the data: read Schroders analysis of 100 years’ returns.

After crashing hard in April, the US stock market rebounded even harder, recently hitting a new all-time high. This has left many investors feeling nervous about the potential for a fall.

Many others have parked savings in cash, attracted by the high rates on offer. The thought of investing that cash-on-the-sidelines when the stock market is at an all-time high feels uncomfortable. But should it?

The conclusion from our analysis of stock market returns since 1926 is unequivocal: no.

The market is actually at an all-time high more often than you might think. Of the 1,187 months since January 1926, the market was at an all-time high in 363 of them, 31% of the time.

And, on average, 12-month returns following an all-time high being hit have been better than at other times: 10.4% ahead of inflation compared with 8.8% when the market wasn’t at a high. Returns on a two or three-year horizon have been similar regardless of whether the market was at an all-time high or not (see chart below).

Returns have been higher if you invested when the stock market was at an all-time high than when it wasn’t

Average inflation-adjusted returns for US large cap equities, p.a.

Differences compound over time

$100 invested in the US stock market in January 1926 would be worth $103,294 at the end of 2024 in inflation-adjusted terms, growth of 7.3% a year. In contrast, a strategy which switched out of the market and into cash for the next month whenever the market hit an all-time high (and went back in again whenever it wasn’t at one) would only be worth $9,922 (Figure 2). This is 90% lower! The return on this portfolio would have been 4.8% in inflation-adjusted terms. Over long time horizons, differences in returns can seriously add up.

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