The U.S. stock market just hit another all-time high.

Every time this occurs, many investors inevitably assume that a decline must be around the corner.

However, this belief stands in complete opposition to the entirety of our investing lives.

In today's email:

• S&P 500 Price History
• Frequency of market corrections
• Risks of all-time highs (short and long-term)

Let's dive in.

It doesn't matter if you're still working or already taking RMDs. If you want to reduce taxes and improve investment returns, you'll enjoy today's episode. ​🎙️ Listen Now →​

The Risk of All-Time Highs

The S&P 500's price has grown from 16 in 1950 (that's not a typo!) to around 5,600 today.

Clearly, over the long term, market highs are not something to fear.

Zooming in, since 1950, there have been 39 market declines of 10% or more, including 11 bear markets (declines of 20% or more).

Despite those 39 declines, the market has reached more than 1,250 new all-time highs on its path from 16 to 5,600.

While I think the long-term data speaks for itself, most concerned investors are speculating about the short-term.

However, historically, the short-term risk isn't as concerning as you might think.

For example:

How frequent are market corrections (declines of 10% or more) after reaching all-time highs?

According to RBC:

In the one year following a new all-time high, corrections followed just 9% of the time.

Over 3-year spans, just 2% of the time.

Over 5-year spans, 0%!

While stats from the past may not help us predict the future, they offer a helpful historical perspective for anyone who believes that all-time highs are signs of pending doom.

Nothing could be further from the truth.

The truth is that new all-time highs are usually followed by more all-time highs.

As evidence, we’ve had 34 this year alone!

Of course, there will be times when bear markets follow a new high (they must), but those instances are clearly the exception, not the rule.

Comfortingly, even in the instances when bear markets did follow a new high, investor patience has been well rewarded.

This is precisely why smart investors believe that time in the market leads to more success than timing the market.

That said, it is human nature to want to know when a market decline will arrive.

We naturally want to protect ourselves.

However, making investing decisions as if a decline is certain is a bigger risk than most people realize.

One of my favorite quotes on this topic came from legendary investor Peter Lynch when he said:

For example, there’s Harry Dent, who has been issuing apocalyptic predictions for the last 15 years, recently predicting a looming 86% decline.

Unfortunately, the sad result of his long-term pessimism is that his followers have probably lost untold millions (or billions).

Ironically, they've lost it by trying to protect their capital. So much for that.

I’m not saying that I know what will happen next. I don’t, nor does anyone else, regardless of how confident they may sound.

But we can learn from the experience of Dent's followers and the data noted above.

The right lesson is that, historically speaking, selling in anticipation of a possible market decline is more likely to be a source of long-term risk rather than an avoidance of it.

Stay wealthy,

Taylor Schulte, CFP®