Is it smart to buy S&P 500 stocks at an all-time high? History provides a clear answer.

Despite a difficult start to September, S&P 500 came roaring back to set new all-time highs.

Investors lost for missing the current rally may be wondering if it’s still a good time to invest. It seems risky to buy stocks when their prices have never been higher. Investors hesitate to buy at the potential top and move into the next bear market with their latest investment in the red for months or possibly years.

However, waiting for a withdrawal can be just as paralyzing. There is no telling how long you will have to wait for the market to decline from its new all-time high. And when it starts to decline, how will you know when to put your money to work with a new investment? Is a 5% withdrawal enough? 10%? Not only is it impossible to predict when the next crisis will occur, but you won’t know when it’s time to jump.

The good news for investors is that investing when the S&P 500 hits an all-time high doesn’t have to be scary. In fact, history shows that investors will do better if they invest when the index hits a new high.

An all-time high is not the top of the market

Every investor knows that the stock market does not go up in a straight line. This is what makes investing at an all-time high somewhat scary. They also know, however, that stocks go up over the long term, which is why it’s worth tolerating the inconvenience of those returns.

In other words, the long-term expectation for stocks is that they should trade at a record high. Today’s all-time high is just a stepping stone to tomorrow’s all-time high. Tomorrow could literally be tomorrow, or it could be a week, a month, or even a year or more from now. But chances are it’s sooner rather than later.

New all-time highs tend to cluster together. Once the market hits a new all-time high, it tends to keep rising for a long time. The S&P 500 closed at a record high 42 times through September 27 this year. And this is far from an aberration. It was another 12 years when the S&P 500 set a new record close at least 40 times since 1955.

If you had bought an index fund on the day the S&P 500 hit its first new all-time high since 2022, on January 19 of this year, your investment would already be up about 18.5%. Despite the strong stock run so far, there could be more to come. The average total return for the S&P 500 24 months after hitting a new all-time high is 20.2% since 1970. Importantly, this is an average of all two-year periods starting from a new all-time high. This would include January 19, 2024, as well as September 26, 2024.

The story continues

On the other hand, consider the risk of not investing in stocks when the S&P 500 hits a new all-time high. Going into cash and waiting to invest for a month after stocks have closed at an all-time high is a serious wealth destroyer. A $100 investment in 1926 would have grown to about $85,000 by the end of 2023, but if you had switched to cash for the following month whenever the market hit an all-time high and then reinvested whenever or it wasn’t at a new high. , your return would be just $8,790, according to data compiled by Schroders. As famous fund manager Peter Lynch said, “Far more money has been lost by investors trying to anticipate corrections than has been lost in the corrections themselves.”

In other words, it is a greater risk not to invest at all than to buy stocks that are trading at all-time highs.

How to invest when the S&P 500 is at record highs

Great individual stocks trading at a great valuation with strong future growth prospects are getting harder and harder to find when the entire market is rising every month. Still, investors willing to commit to researching trends and companies and focusing on long-term potential may do well to buy individual stocks even if they’re priced at all-time highs.

But if researching individual companies and their industries and keeping a pulse on the macroeconomic factors that influence them most isn’t your thing, there are simpler options. One of the most effective ways to invest your money in stocks while the S&P 500 is at highs is to buy a simple index fund.

You might consider Vanguard S&P 500 ETF (NYSEMKT:VOO) if you simply want to track the returns of the S&P 500. And based on the data presented above, that should work well for investors. Vanguard’s expense ratio for the fund is 0.03%, meaning you’ll pay just $0.30 a year for every $1,000 you invest in the ETF.

There are plenty of options no matter what style of investment you prefer. That said, deviating more from an index that tracks the S&P 500 can produce very different results. Even so, there is no guarantee that the major stock index hasn’t reached a temporary peak (despite the fact that history suggests it has a long way to go). Most of the time, investing when stocks hit an all-time high works extremely well for investors. And if you can catch a stock pullback like the one in early September, that’s even better.

In the long run, stocks rise. The current all-time high is just a stop on the way to the next all-time high.

Should you invest $1,000 in the Vanguard S&P 500 ETF right now?

Before buying shares in the Vanguard S&P 500 ETF, consider the following:

The Motley Fool Stock Advisor the analyst team has just identified what they think they are 10 best stocks for investors to buy now… and the Vanguard S&P 500 ETF was not one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you would have $744,197!*

Stock advisor provides investors with an easy-to-follow blueprint for success, including portfolio construction guidance, regular updates from analysts, and two new stock picks every month. The Stock advisor the service has more than four times return of the S&P 500 since 2002*.

See the 10 stocks »

*The Equity Advisor returns as of September 30, 2024

Adam Levy has no position in any of the listed stocks. The Motley Fool has positions in and recommends the Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.

Is it smart to buy S&P 500 stocks at an all-time high? History provides a clear answer. was originally published by The Motley Fool