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.
Aside from being a big, round number, 5,000 isn’t a particularly important threshold for the broad U.S. stock market barometer in and of itself. But pushing the market to new all-time highs is a sign that investors have confidence in the direction of the economy. Stocks in the index have climbed 5.9% since the start of the year and 23% over the past 12 months.
“At the end of the day, we’re still seeing whopping good news on an 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 seems to the market that we actually are sticking a landing here.”
The good news of all-time highs in the stock market will hit every investor differently. Some may be drawn to dump as much as they can in the market for fear of missing out on gains. For others, an “all-time high” may sound like the top of a cliff, an excuse to wait until prices fall before investing.
Financial pros say you’d be wise to avoid making any wholesale changes to your strategy based on short-term moves in the stock market. And if you’re investing on a regular basis, don’t be spooked that the market is doing better than ever.
“Investors in general, but especially younger investors, should ignore the headlines about all-time highs in the S&P 500,” says Kevin Brady, a certified financial planner at Wealthspire Advisors in New York City. “Why? Because they are not uncommon, meaning all-time highs more often than not lead to further all-time highs in short order.”
Why now is a good time to invest
There’s something counterintuitive about getting into the market at an all-time peak. After all, the mantra in investing is “buy low, sell high.”
Market watchers would be quick to point a few things out on this front. 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 some 85% of the time since 1950, and returns tend to be better than average for investors who got in at times similar to these.
Friday’s trading marked the seventh time in history that the S&P 500 took more than two years to make a new all-time high, according to Goldman Sachs. In the 12 months following each of those incidents, the index has returned 13% on average, compared with a 7.8% average return without conditions.
You don’t have to think too hard for it to make sense. The stock market has historically trended up. That means that, during bull markets, all-time highs eventually beget new all-time highs.
If we’re in the beginning of a new bull run, “this would not be the time to hit the snooze button,” says Jon Ulin, a CFP and CEO of Ulin & Co. Wealth Management in Boca Raton, Florida.
Why you’d be wise to stick to your plan
Financial planners will tell you now is a good time to invest because now is always a good time to invest. That’s because, over the course of your life as an investor, giving your money as much time as you can to compound is more important than where exactly the market was when you got in.
That’s why, while exciting, news that the S&P 500 has broken through a new barrier shouldn’t really move the needle in terms of the way you’re approaching markets, says Brandon Gibson, a CFP and founder of Gibson Wealth Management in Dallas, Texas.
“Young investors should focus on what they can control, such as being broadly diversified, investing regularly and keeping an eye on expenses,” he says.
Investing regularly, in particular, can keep you from getting caught in the daily ups and downs of the market.
Rather than trying to pinpoint exactly 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 into your portfolio at regular intervals, you guarantee that you buy more shares when stock prices are low and fewer when they’re high.
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