Key Points
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Timing the market rarely works.
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Looking at the market from a historical perspective may help you overcome uncertainty.
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Since 1950, the market has hit a surprising number of highs.
The older I get, the more I seek historical perspective. For example, the year-over-year inflation rate (from April 2025 to April 2026) is 3.8%, and no one can say it’s been easy. However, an inflation rate of 3.8% seems like relatively small potatoes compared to the 23.7% rate that rocked the U.S. between June 1919 and June 1920.
Granted, I wasn’t alive in 1920 and can only imagine the financial trouble Americans faced at that time, but history tells me the situation was even worse than it is today.
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And when it comes to determining whether it’s wise to invest when the stock market is hot, and assets are selling at a premium, the first thing I do is look back to see what’s happened in the past.
Overcoming your instinct
Whether you’re investing $100 or $100,000, you may face what’s called a “psychological barrier to entry.” It makes perfect sense because you’ve probably been conditioned to look for bargains, and investing at all-time highs means paying more than anyone has ever paid before.
You may consider investing when the market is hot to be a guaranteed recipe for disaster. However, that’s not what history shows.
Timing the market
Investors who attempt to time the market try to avoid market highs and buy when prices are low. However, timing the market is nearly impossible to get right. Look at any market graph, and you’ll see that all-time highs are not uncommon. Since 1950, the broad U.S. equity market has set more than 1,300 all-time highs.
If you were to drop out every time the market heated up, you would have missed out on massive gains.
Investing only at all-time highs
Imagine this scenario: Over the 75 years between 1950 and 1925, a person chose to invest only when the market was at an all-time high. Here’s a comparison of how their returns compared to someone who continued to invest throughout the same period of highs and lows:
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Buying only at all-time highs |
Continually investing through highs and lows |
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|---|---|---|
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Average 1-year return |
11.3% |
12.8% |
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Average 3-year return |
10.8% |
11.5% |
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Average 5-year return |
10.5% |
11.4% |
Data Source: Bloomberg.
Bear in mind, this table does not reflect transaction costs, management fees, or taxes. However, it does give you an idea of how little market highs have historically impacted investor portfolios.
And yet…
When markets are hot, many investors can’t help but feel uneasy, worried that the timing is “off.” Some investors wait for a significant correction (a drop in the market) before jumping back in. But what if a correction never comes (and often, it doesn’t)? Will they regret missing out on the gains they could have enjoyed?
Again, here’s where history comes in handy. Looking at the one-year mark of all market highs since 1950, a correction of more than 10% has occurred only 9% of the time. And looking even further out, the S&P 500has never been down by more than 10% at the five-year mark following an all-time high since 1950.
In other words, waiting for the market to significantly cool off hasn’t typically worked out well for those who chose to sit it out. While past results do not predict future performance, they do give you an idea of what’s worked out best for other investors.
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