Investing at an all-time high can feel like investing at exactly the wrong time.
If markets have already risen, it is easy to assume that the opportunity has passed or that a decline must be approaching.
However, markets do not operate around previous record levels. They respond to changing expectations for company earnings, economic growth, interest rates, inflation, and many other factors.
A record level tells us where a market has been. On its own, it tells us relatively little about where it will go next.
An all-time high simply means that a market has reached its highest recorded value to date.
While this can feel exceptional, history suggests they are surprisingly common.
Analysis of the US stock market between January 1926 to the end of 2024 found that the market was at an all-time high during 363 of the 1,187 months analysed, equivalent to approximately 31% of the time.
This is a natural consequence of long-term market growth. An index cannot rise substantially over several decades without repeatedly reaching and surpassing previous records along the way.
What happens after markets reach record levels?
An all-time high can create the impression that markets have reached a ceiling, making a decline feel more likely than further growth.
However, US market data since 1926 does not support this assumption. Average inflation adjusted returns during the 12-months following an all-time high were approximately 10.4%, compared with 8.8% when the market was not at a record.
Over two and three year investment horizons, returns were broadly similar whether investing at an all-time high or at other times.
This does not mean markets will always continue rising after reaching a record. Rather, reaching an all-time high has not historically been a reliable indicator that poor returns will follow.
Remember, past performance is not indicative of future returns.
An all-time high is sometimes interpreted as a sign that investments have become expensive. However, price and valuation measure two different things.
This distinction matters because these fundamentals can also increase over time. A higher market price may therefore be supported by higher corporate earnings, economic growth, productivity, or innovation.
A market can consequently reach an all-time high without necessarily being overvalued. Equally, a market trading below its previous record can still be expensive relative to its underlying fundamentals.
Record market prices can therefore mean very different things depending on what has driven the increase, with the underlying fundamentals often providing greater insight into what is happening within the market.
Faced with record markets, the temptation can be to remain in cash and wait for a better opportunity.
The problem is that markets may continue rising before the next correction occurs. Even after a subsequent decline, prices could remain above the level at which the decision to wait was originally made.
For example, a comparison of two hypothetical strategies using US market returns since 1926 found that $100 invested continuously would have grown to approximately $103,294 by the end of 2024, after adjusting for inflation.
By comparison, the same $100 moved into cash for the month following each all-time high, before being reinvested when the market was no longer at a record, would have grown to approximately $9,922, around 90% less than remaining continuously invested.
Decisions based on whether markets feel high or low can easily become attempts to time short-term movements rather than decisions based on a long-term investment strategy.
At Patterson-Mills, we help our clients block out the unnecessary noise and stick to their long-term plan through a tried and tested process of ongoing review of investments, appropriate diversification, risk rated portfolios, and adapting to changing financial circumstances rather than individual market milestones.
If you would like to review whether your current investments remain appropriately positioned for your future plans and wider financial circumstances, send us an e-mail to contactus@pattersonmills.com or call us direct at +44 (0) 1908 503 741 and we shall be pleased to assist you.
Please note that all content within this article has been prepared for information purposes only. This article does not constitute financial, legal, or tax advice. Always ensure you speak to a regulated Financial Adviser before making any financial decisions.
Source: Schroders, 2025
