3 helpful lessons to learn about investing when the stock market is up

16 May 2024

In the past 12 months, the stock market has begun to show signs of reliable growth after three years of increased unpredictability.

Understandably, the Covid-19 pandemic and inflationary conditions that followed all threw the stock market for a loop. As a result, during the periods between 2020 and 2023, you may have seen the value of your investments go down or fluctuate sporadically.

However, when 2023 drew to a close, several key global market indices all posted positive returns for the year.

Source: JP Morgan

What’s more, as Macrotrends reports, the US S&P 500 reached an all-time peak in early 2024. And Yahoo Finance reports that the UK FTSE All-Share index also stood at an all-time high as of 14 May 2024.

While all this is great news for those who are already invested, you might be wondering: “If the stock market is booming, is now a good time to buy shares?”

Keep reading to learn three helpful lessons about investing when the stock market is up.

1. Markets reach all-time highs more often than you may think

If you recently saw a headline about a particular stock market index reaching an “all-time high”, you might assume that now is not the time to buy shares in that index. If the “only way is down”, you may think you’re bound to lose money on this investment.

However, it’s important to remember that the general upward trajectory of market values makes investing an attractive prospect for a reason. Over the long term, asset values are likely to grow, breaking new records along the way.

In fact, in February 2024, Schroders reported that of the 1,176 months since the US stock market opened in January 1926, the market had been at an all-time high for 354 of them. That is 30% of the time.

As an example, the study says that if you had invested $100 into the US stock market in January 1926, it would have been worth $85,008 by the end of 2023.

However, if you had switched to cash for the month after every all-time high, and gone back into the market when it was not at an all-time high, your $100 would only be $8,790 by the end of 2023 – 90% lower than the previous figure.

This research might help to put your mind at ease that, even if the shares you wish to buy are at an all-time high, this doesn’t mean you should shy away from purchasing them.

Instead, look at whether this investment fits into your overall long-term plan; you’ll read more about this later in the article.

2. A passive approach could be more effective than timing the market

There have been several historical examples of how a “do nothing” approach to investing often outstrips those who actively attempt to time the market and select successful stocks.

One recent instance, reported by Yahoo Finance, is of an investor who modelled a passive portfolio based on the US S&P 500. But instead of replacing stocks with new companies when they’re delisted, this investor sits back and does nothing at all.

Once this investor ran the numbers, he realised that his passive portfolio would have beaten the S&P 500 by 5.6% in the 30 year period between March 1993 and March 2023.

Of course, this is not a strategy that guarantees success – but often, investors overcomplicate their approach in search of gains.

As such, being worried about investing when the stock market is booming could hamper your long-term returns. Rather than attempting to time your investments when asset values have dipped, a consistent, hands-off investment approach could serve you better over the long-term.

3. A professionally guided long-term plan could boost your investing confidence

With all of the above in mind, it could benefit you to sit down with a financial planner and discuss your investment goals.

After all, it’s likely that you are investing to serve a long-term purpose, be it an early retirement, helping the next generation, or living out long-held lifestyle goals such as luxury travel.

Without a clear “why”, you could become a more cautious investor who worries unnecessarily about timing your investments perfectly. This could lead to an unhelpful long-term mindset, and may even prompt you to keep a large portion of your wealth in cash accounts, where it is more vulnerable to the effects of inflation.

Come rain or shine, a long-term strategy could help you to:

• Stop worrying about investing at the “right time”
• Help you take a more consistent approach
• Boost your confidence as an investor
• Reduce your anxiety around market volatility
• Steadily work towards your long-term wealth goals.

What’s more, working with a professional could strengthen your knowledge and motivate you to remain a consistent investor throughout your life.

To discuss your investment strategy with a qualified expert, email info@depledgeswm.com or call 0161 8080200.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.