Should You Invest at All-Time Highs?

Markets hitting all-time highs tends to make investors nervous. The logic makes sense on the paper, if prices are at a record, surely it's better to wait for a pullback and grab a cheaper entry point?

It's a fair thought, but the data tells a more interesting story.

The Waiting Game Rarely Pays Off

Yes, if you wait long enough after buying, there's a very high chance the market will dip below your entry price at some point. Across more than a century of Dow Jones data, that probability sits around 97%. So in theory, patience gets rewarded with a lower price eventually.

The catch? Those dips only happen on roughly 5% of trading days - and nobody rings a bell to tell you when they're coming. You'd be sitting in cash, missing returns, waiting for a moment you almost certainly can't predict.

And here's the kicker - when you look specifically at all-time highs, the probability of seeing a future lower price is almost identical to any other day. Buying at a record high doesn't make you any more exposed to a pullback than buying on a random Tuesday.

Source: YCharts (OfDollarsAndData.com) Note: "Near ATH" is anytime the index is within 5% from it's all time highs. "Off ATH" is anytime the index is more than 5% from it's all time high. The average annualised return when "Near ATH" is 8% compared to 10% when "Off ATH".

Does Buying High Actually Hurt Returns?

For US shares, the short answer is: no not really.

Looking at S&P 500 data going back to 1950, the 1-year returns after buying near an all-time high are slightly lower than when the market is well off its highs (around 8.3% vs 10.1%). So there's a small short-term drag.

But flip to a 3-year window, and it actually reverses - returns near all-time highs edge ahead. The fact that 1-year and 3-year data point in opposite directions is basically the market telling us that all-time highs don't mean much either way. There's no consistent signal worth acting on.

Source: YCharts (OfDollarsAndData.com)

Note: "Near ATH" is anytime the index is within 5% from it's all time highs. "Off ATH" is anytime the index is more than 5% from it's all time high. The average annualised return when "Near ATH" is 8.4% compared to 7.8% when "Off ATH".

But What About Momentum Trades?

To answer this question lets look at two of the most common Momentum trades, Gold and Bitcoin. Both gold and Bitcoin have a strong track record of continuing to run after hitting new highs - at least in the short term.

Historically, gold has returned close to 38% on average in the 12 months following an all-time high, compared to around 4% when it's been off its highs. Bitcoin's numbers are even more dramatic, averaging around 146% in the year after a new record versus 78% when it's not near one.

The catch with both is that the 3-year numbers look a lot less impressive. The momentum tends to be front-loaded. What this tells us is that gold and Bitcoin go through long stretches of going nowhere, punctuated by big runs. When those runs start, history suggests they tend to continue - but eventually they cool off, sometimes for years.

Source: YCharts (OfDollarsAndData.com)

Note: "Near ATH" is anytime the index is within 5% from it's all time highs. "Off ATH" is anytime the index is more than 5% from it's all time high. The average annualised return for Gold when "Near ATH" is 37.9% compared to 4.1% when "Off ATH". The average annualised return for Bitcoin when "Near ATH" is 145.9% compared to 78.4% when "Off ATH".

So What Should You Actually Do?

The data across all these asset classes points to the same conclusion - all-time highs aren't a reason to stop investing. If anything, they're a neutral to mildly positive signal in the short term.

That doesn't mean you have to go all-in without thought. If you're genuinely concerned about valuations or market conditions, a small, deliberate adjustment to your portfolio is fine. Maybe you trim your risk exposure slightly, add a bit of defensive positioning, or just make sure your allocation still matches your actual risk tolerance.

What you probably shouldn't do is sit on the sidelines waiting for a better entry that may or may not come - while you battle FOMO as the market continues to grind higher.

The boring truth is that consistent, disciplined investing tends to beat clever timing. All-time highs feel uncomfortable, but they've historically been a normal part of how markets work - not a warning sign to act on.