Key Points
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Some investors believe that investing when stocks are trading at all-time highs sets them up for poor future returns.
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A Vanguard study shows that investors can actually do better when they buy into the S&P 500 at its highs.
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Trying to time the market is a poor investment strategy.
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Imagine a scenario where you have a few thousand dollars that you’re ready to invest. But you look at the S&P 500 (SNPINDEX: ^GSPC) sitting near an all-time high and decide the stock market is too expensive. Prices are too high, and they’re bound to head lower soon. So you decide to wait until there’s a modest 5% pullback before investing.
If you had followed that logic on April 15 of this year — the day when the S&P 500 hit its first new high in the wake of the downturn that was triggered by the start of the Iran war — you’d still be waiting on the sidelines. The index hasn’t pulled back by that much in six months. But it has gained more than 10% since then, a gain you would’ve missed.
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That scenario illustrates a mistake too many investors make: waiting for a perfect buying opportunity that may or may not ever come. History suggests it can be a costly error, too.
Buying high isn’t necessarily a mistake
Investors often presume that they are not getting a good value if they are buying stocks that are trading near their all-time highs, or that they’re setting themselves up for disappointing returns, assuming that most of the potential gains have already occurred.
History, however, suggests that pricey markets may actually be good times to buy after all.
Vanguard conducted a study in which it looked at the stock market’s performance from 1950 through 2025. It found that returns for the S&P 500 over one-year periods following a high averaged 9.5% versus 9.2% on all other days. The margin was 30.2% to 28.5% over three-year periods and 55.8% to 51.9% over five-year periods.
Over the longer term, however, the relationship breaks down somewhat. The Vanguard study found that investing on days when the market was at record highs produced below-average returns over 10- and 20-year periods.
But the study proves one thing: Investing when the market is setting all-time highs doesn’t necessarily mean that you’re more liable to generate poor returns or that a pullback is imminent. Investors have historically still been able to capture solid returns for years after all-time highs.
What I’d do instead
Long-term investing focuses on what your portfolio could look like decades from now, not just in the next year. Steady investing is one of the best ways to accomplish this. Setting aside a consistent amount of money and investing it every pay period or every month allows you to slowly build your portfolio over time, take advantage of the power of compound growth over the long term, and buy shares at a discount in the event of a pullback. All three of these things together can help you create wealth.
Nobody can really know what will happen in the market over the next one, five, or 10 years. Instead of trying to bet on a specific outcome, it’s usually best to just invest through it and maintain your processes.
The goal shouldn’t be to buy at the lowest possible price. It should be to build meaningful wealth over time.
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David Dierking has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
