Should You Avoid Investing at All-Time Highs?
- Gordon Russ
- 5 days ago
- 2 min read
Many people say investing at all-time highs is a bad decision and that you should wait to “buy the dip.” But the data shows your average return is actually higher when investing at all-time highs.
By now, we’ve all heard the saying “buy low and sell high.” While that may be true in some situations, the data tells a different story when it comes to long-term investing. Historically, buying the S&P 500 at all-time highs has produced higher average forward returns compared to any other day:
1-year: 9.4% vs. 9.2%
3-year: 28.3% vs. 27.8%
5-year: 51.1% vs. 48.9%
As surprising as this may seem, it doesn’t guarantee future results. But there are a few logical reasons why investing at all-time highs has worked over time.
The first is the momentum effect. When markets fall, investors often panic and move to “safer” assets like cash or bonds. Advisors tend to get more calls during downturns than during periods of growth. Then, as markets recover, investors begin to pile back in. This behavior is driven by loss aversion, the tendency to feel losses more strongly than gains. And it’s not just individual investors. Institutional investors exhibit similar patterns.
The second reason is earnings growth. According to FTPortfolio.com, most of the S&P 500’s returns in 2025 were driven by earnings growth. Roughly 13.5 percentage points, nearly 75% of the gain, came from higher earnings per share (EPS). The rest came from dividends and valuation expansion. Despite what headlines may suggest, many Fortune 500 companies continue to grow profits and deliver value to shareholders.
The third reason is how indexes like the S&P 500 are structured. They are self-cleansing and automatically adjust based on company performance. As companies grow, they make up a larger portion of the index, attracting more investment dollars. With passive investing now accounting for over 50% of invested assets in the U.S., this dynamic continues to reinforce upward momentum and contribute to new market highs.
No one knows when the next downturn will occur. But the data suggests that trying to time the market may not be necessary. These results reflect index-level performance, not individual stocks, where outcomes can vary.
If you need help staying disciplined and confident while investing at all-time highs or during market volatility, reach out to us at Alpha Financial Management. We help clients stay invested, diversified, and focused on long-term goals with a personalized plan built for their needs.
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