Ben Gran, The Motley Fool
4 min read
Since 2001, throughout my adult life, I’ve never seen a stock market this strong. These have been excellent times for investors. In the past 10 years, the S&P 500 index (SNPINDEX: ^GSPC) has delivered average annual returns of 15.3%. That means if you invested $10,000 in the Vanguard S&P 500 ETF (NYSEMKT: VOO) 10 years ago, today that investment would be worth about $41,523.
So why are so many investors feeling nervous? The S&P 500 recently reached a new record high on Oct. 6, with an intraday trading level of 7,844.52. As of this writing, the S&P 500 is down just slightly from that record high.
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All-time highs in the stock market might sound like good news, but many investors see them as a bad sign of things to come. Will the stock market crash after all-time highs? The good times can’t keep going forever, right?
Here’s a surprising fact about the stock market: Just because the S&P 500 is hitting new record highs doesn’t mean it’s a bad time to invest. Stocks can keep growing. Good news can build upon itself. Bull markets can last longer than you think.
Let’s look at why now could be a good time to buy stocks — especially if you’re a patient investor with a long-term perspective.
S&P 500 record highs are often the best times to invest
Many investors instinctively feel like new record highs in the S&P 500 are a sure sign that the market is about to pull back. But history shows that’s not true.
Fidelity researchers analyzed S&P 500 returns since 1920. They found that investing in the S&P 500 at all-time highs delivered higher returns than on all other days. The returns were even better for longer-term investors. In the past 106 years, since 1920, if you had invested on days when the S&P 500 reached an all-time high, your investment would deliver an average 63% return in the next five years — versus only 58.8% in five years after investing on all other days.
The stock market tends to go up and keep going up. Since 1928, the S&P 500 has delivered average annual returns of 9.98%. New record highs don’t have to be an ominous sign of bad news to come. Just the fact that the stock market keeps going up might be a positive sign that many investors want to buy stocks and that many people are seeing the potential for strong economic growth and rising corporate earnings. Good news in the stock market can compound like compound interest.
