The S&P 500 index closed above 5,000 for the first time on Friday, with investors showing continued optimism about cooling inflation, strong earnings and a resilient economy.
Besides being a big, round number, 5,000 isn’t a particularly important threshold for the broad barometer of the US stock market per se. But the market’s push to new all-time highs is a sign that investors have confidence in the direction of the economy. Stocks in the index are up 5.9% year-to-date and 23% over the past 12 months.
“At the end of the day, we’re still seeing good news on the economic front and the market is reacting to that,” Dana D’Auria, co-chief investment officer at Envestnet, told CNBC. “The longer that story plays out, the more likely it is that the market will see that we’re actually stuck here.”
The good news about all-time highs in the stock market will hit every investor differently. Some may be reluctant to throw as much as they can into the market for fear of losing profits. To others, “all-time high” may sound like the top of a cliff, an excuse to wait until prices fall before investing.
Financial professionals say you’d be wise to avoid wholesale changes to your strategy based on short-term movements in the stock market. And if you are investing regularly, don’t panic the market is doing better than ever.
“Investors in general, but younger investors in particular, should ignore headlines about the S&P 500’s all-time highs,” says Kevin Brady, a certified financial planner at Wealthspire Advisors in New York City. “Why? Because they are not rare, meaning that all-time highs more often than not lead to other all-time highs in a short amount of time.”
There is something counterintuitive about entering the market at an all-time high. After all, the mantra in investing is “buy low, sell high.”
Market watchers would be quick to point out a few things in this regard. For one, just because the market is at a high doesn’t mean it doesn’t have the potential to go higher. In fact, the S&P 500 has been in bull mode about 85% of the time since 1950, and returns tend to be better than average for investors who entered at similar times.
Friday’s trade marked the seventh time in history that the S&P 500 took more than two years to reach a new all-time high, according to Goldman Sachs. In the 12 months following each of these incidents, the index returned an average of 13%, compared to an unconditional average return of 7.8%.
You don’t have to think too hard to make sense. The stock market has historically had an upward trend. This means that, during bull markets, all-time highs eventually give rise to new all-time highs.
If we’re at the start of a new bull run, “this wouldn’t be the time to hit the snooze button,” says Jon Ulin, a CFP and CEO of Ulin & Co. Wealth Management in Boca Raton, Florida.
Financial planners will tell you that now is a good time to invest, because now is always a good time to invest. That’s because, during your life as an investor, giving your money as much time as you can to compound is more important than exactly where the market was when you entered.
That’s why, while exciting, the news that the S&P 500 broke a new barrier shouldn’t really move the needle in terms of how you’re approaching the markets, says Brandon Gibson, a CFP and founder of Gibson Wealth Management in Dallas. . Texas.
“New investors should focus on what they can control, such as broad diversification, regular investing and watching expenses,” he says.
Regular investing, in particular, can prevent you from getting caught up in the daily ups and downs of the market.
Instead of trying to pinpoint the best time to invest—an impossibility, even for professional investors—try a strategy known as dollar cost averaging. By investing a fixed amount of money in your portfolio at regular intervals, you ensure that you buy more shares when stock prices are low and less when they are high.
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