Everyone loves a bargain – which makes the idea of buying stocks during an all-time market high seem unappealing.
Think of it like the Black Friday sales: thousands of hopeful shoppers log on or line up from the early hours knowing they’ll bag a bargain, at much less than full price, rather than pay a premium a week later in the peak Christmas shopping season.
We see similar behaviour in investing, where there’s a tendency to wait until markets are ‘on sale’ to bag that bargain.
The problem with this strategy is that in investing, we never know when the next sale is coming up, or what the discount may be. It’s not like they advertise market downturns ahead of time, after all.
Furthermore, as markets generally trend upwards, there’s a chance the sale will never happen and you’ll end up buying even higher than today’s price anyway
Way back in 2022 we asked if it was good to buy the dip when Australian shares were cheap compared to historical averages, and concluded that they were actually just about the same as they ever were.
This time around, we’re asking the opposite question: is it a good idea to buy during an all-time market high?
Should you fear investing when markets have never been higher?
As the S&P ASX/200 goes up regularly over time, it’s not that unusual for there to be an all-time market high.
It’s just that when it smashes through a symbolic barrier, like the 8,000 points that it broke in mid-July 2024, it makes the news.
The ASX peaked at around 6,750 points in October 2007, then never reached that height again until 2019 and subsequently peaked in February 2020.
On both occasions, the high was followed by a big drop – the Global Financial Crisis of 2008 and the Covid pandemic of 2020, respectively – and took time to recover.
What is perhaps most newsworthy is that, after topping 7,000 points in early 2021, the ASX is yet to dip under that level and has, instead, continued to grow – especially given the 12 years it took to return to a peak following the GFC.
Investors, understandably, remember the two previous peaks and still hold fears that losses might follow.
As a result, many Australians now sit on large amounts of cash, fearful of investing at the top of the market.
What does the data say about all-time market highs?
Is that fear well placed? Well – not according to the data.
We ran the numbers over the last 30 years to 2019 to see how you would have done if you’d invested whenever the market hit an all-time ASX high.
Between 1989 and 2019 there were 359 days where the Australian share market reached a new all-time high.
If you had invested only on these 359 days you had about the same chance of a positive return compared if you had only invested on days when the market didn’t make an all time high.
| All time high | Not all time high | |
| Chance of positive return over next 12 months | 71% | 72% |
Historically when the share market has reached an all time high, the next 12 months have generated an average capital return of 6.5% (excluding dividends).
What’s interesting is that this is higher than if you invested when the market was not at its peak!
That’s right – investing when the market is at an all-time high has historically delivered higher returns than investing when the market is not at an all-time high!
There are also similar studies in the USA dating back over a century that show buying when the share market is at an all-time high was actually a successful strategy.
An all-time market high leads to more all-time highs
After a new all time high has been reached, the average number of days before the next one is 30 days.
In fact, if you exclude the 12 year wait from 2007 to 2019, the average number of days is just 19!
In other words, the first all time high is usually followed by more of them. In 93% of instances, the next all time high was within the next month.
The US share market has now made hundreds of all-time highs since it first exceeded its pre-GFC peak in 2013.
There have been only four times over the last 30 years where investors had to wait more than a year for a new all-time high (the next highs came in May 1993, October 1996, April 2004 and July 2019).
In the first 3 of these cases (1993, 1996 and 2004) once a new high was reached the average capital return over the next 12 months was 20%.
Even with a huge external shock like the global pandemic, the market high of January 2020 was topped in April 2021 and then continued to rise for another four months.
Markets are like an elastic band and the longer it takes to make a new high, the faster markets tend to climb after that new high is eventually reached.
| All time high | Time to make new high | 12 month capital return after new high |
| 12 January 1990 | 40 months (26 May 1993) | 22% |
| 3 February 1994 | 32 months (7 October 1996) | 18% |
| 7 March 2002 | 25 months (1 April 2004) | 20% |
So what does this all mean for you?
Unlike shopping, it doesn’t pay to wait for a bargain when you invest. Historically, investors that paid full price have done just as well as those who have invested at other times.
Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections than has been lost in corrections themselves.
Peter Lynch
The less time you focus on forecasting where the market is going, the better off you will be.
That’s why our advice is that the best time to invest in the market is regularly. The longer you remain invested, the more you will benefit from the wonderful effect of compounding.
Even on the occasions that markets fall, you can rely on diversification and owning defensive assets that are not correlated to the share market (such as bonds and gold) to help keep you confident in your investments.
If you are waiting for a correction in the market from an all-time ASX high, you could potentially be missing out on years of good returns while you wait. Don’t worry about paying full price.
^ We’ve defined all time high as a day when the All Ordinaries index closes at an “all time” high. Note that the All Ordinaries Accumulation index would reach all time highs more often – however the results are similar.
