Embarking on the investing journey when the stock market is soaring to new heights can be an intimidating venture. The fears of regret lurking for those who hesitated during the ongoing bull market dance with the caution of seasoned investors who sense the looming end of the bullish run. The paradox is clear: every bear market must dawn just as stocks peak at an all-time high.
The Historical Trajectory of Soaring Stocks
Stocks have a tendency to ascend steadily over time. The climb from one all-time high to the next is an intrinsic part of their upward trajectory. For instance, in 1995, the S&P 500 soared to a record high on an astounding 77 occasions, a figure approximately accounting for 30% of all trading days.
Fast forward to 2024 – within the first quarter alone, the index has positioned itself at an all-time high 22 times already. It comes as no surprise that stocks are likely to continue their upward march, forging ahead to set even more unprecedented highs.
Historical data from Truist Advisory Services indicates that the S&P 500 typically surges by an average of 14% within a year of establishing a new all-time high. The current stock scenario reflects a gap of about 8.5% from the previous all-time high set in January 2022, leaving ample room for future growth in the upcoming months.
Peering into the future paints an even more optimistic picture. Three years post hitting an all-time high, the S&P 500 tends to soar by an average of over 50% and nearly 80% within five years, as deduced from data compiled by JPMorgan. These figures outshine the average returns witnessed on any typical trading day. Fundamentally speaking, investing at the pinnacle of a market surge often proves to be a lucrative opportunity.
Crafting a Strategy for Investments amidst Skyrocketing Markets
For individual stock investors, identifying value in a market teetering at all-time highs can pose challenges compared to navigating through a bear market trough. However, amidst the labyrinth, opportunities invariably lurk. Delving into thorough research to unearth companies with resilient potential trading at reasonable valuations can yield substantial returns in the long haul.
For the less research-savvy, embracing a simplistic yet effective approach by investing in a broad-based index fund such as the Vanguard S&P 500 ETF (NYSEMKT: VOO) can secure gratifying returns. This index fund shadows the performance of the S&P 500 closely, offering investors considerable exposure to the stock market at a nominal expense.
The current composition of the S&P 500 underscores the potential richness dwelling within smaller companies. With the top 10 S&P 500 entities accounting for more than 36% of the entire index – a concentration level reminiscent of the 1970s – the market’s upward trajectory could be buoyed by smaller entities bridging the gap with the dominant mega-caps propelling returns in recent years.
For a more even-handed exposure across the spectrum of S&P 500 constituents, the Invesco S&P 500 Equal Weight ETF (NYSEMKT: RSP) offers a viable solution. This index fund maintains an equal weighting of stocks within the S&P 500 index, readjusting every quarter. Historical data indicates that the equal-weight index has marginally outperformed the S&P 500 index, despite the stellar performance of major companies over the past decade.
Regardless of the investment path chosen, diving into stocks while the S&P 500 is perched at a record high remains a propitious opportunity. Whilst the pang of missed opportunities in the ongoing bull market may weigh on one’s mind, historical data suggests that the market is far from reaching its zenith.