Investing when the stock market is at an all-time high can feel risky and make you fearful. But, looking at the data and understanding your emotional response, can help you see that staying out of the markets during all-time highs can result in much poorer returns over the long-term.
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There’s a natural tension when markets are hitting new “all-time highs”. On the one hand, rallying stock prices feel like proof that momentum is strong. On the other, there’s always a whisper in the back of your head saying “Is it too late? Am I buying at the top?”
That hesitation is a very human emotion. And, we all know that investing based on your emotions is never a good idea.
Today, both the S&P 500 Index and the local Straits Times Index (STI) are trading at all-time highs. But, investing in a market that’s at its high doesn’t mean you should freeze.
In fact, the smart move is to continue doing what you should already be doing – and that’s investing regularly each month. Also known as dollar-cost averaging (DCA), this is one of the best ways to average out your investment price – and avoid the risk of going all in at the top.
And if you ever find yourself holding a large sum to invest, there are ways you can manage entering the market. So, let’s see what the data say about buying at all-time highs and what investors can do to help mitigate their natural aversion to doing so.
Read Also: 20 Investment Platforms Singaporeans Can Use To Invest A Fixed Monthly Sum
Why New Highs Don’t Mean Disaster Is Looming
First, let’s look at the data because the data don’t lie. On a regular basis, markets set fresh highs. Data from RBC Global Asset Management, which looks at the S&P 500 Index from 1950 to the end of 2023, found that the index posted 1,250 all-time highs – that’s an average of more than 16 per year.
That pattern suggests new highs are less a warning and more a feature of long-term growth.
Meanwhile, Schroders, another large asset manager, came up with research that explains why “waiting to buy” can be costly.
Its study of US stock market data (from 1926 to the end of 2024) shows that 12 months after a new high, real (inflation-adjusted) returns average 10.4 %, versus 8.8 % for investing at all other times.
Over 2- and 3-year horizons, annualised returns from highs are broadly in line with average market returns.
In short, investing at a high is not historically a signal of imminent ruin. What is dangerous is waiting on the sidelines in hopes of a dip that never arrives. That “waiting for lower prices” mindset has cost many investors dearly.
Schroders shows that a strategy of selling whenever markets hit a high (moving to cash) and re-entering only when they’re not at a high would have destroyed 90% of wealth between 1926 and 2024, relative to staying invested.
Dollar-Cost Averaging: Your Best Ally
Given the emotional friction, DCA offers a path that bridges caution and action. You commit to investing a fixed amount periodically (say monthly or quarterly although ideally the former).
Some contributions will land when prices are higher, some when they’re lower but over time your purchase price smooths out. Most importantly, it effectively “forces” you to invest regardless of market conditions.
In volatile markets, that smoothing effect is also especially valuable. In falling markets, DCA limits downside exposure relative to lump-sum investing. In rising markets, lump-sum may beat DCA but only if you “time the market” perfectly, which we know is nearly impossible to do.
In practice, if you already invest regularly then DCA is likely already part of your routine. If you’re a long-term investor, the goal is time in the market, not timing the market.
What If You Have A Lump Sum?
Sometimes, life can hand you a windfall of money. These come in a variety of forms, including an inheritance, bonus, sale of an asset, or a gift. In other words, you have a big lump of cash you might not know what to do with.
However, you definitely don’t want to let it languish in cash/T-bills/SSBs given the poor yields on offer but deploying it all at once into stock markets – when they’re posting new highs – can be psychologically difficult to do.
In that scenario, you can blend DCA with a well-thought out, or staggered, approach to investing into the market:
- Split the capital into 3 or 4 equal tranches
- Deploy one tranche immediately – That lets you capture upside if markets continue rising.
- Deploy the remainder over the next 3 to 6 months – E.g. another tranche every three to six months that in effect allows you to DCA over these periods.
- Continue earning a fixed return on tranches you don’t immediately invest – You can put your cash into cash management accounts that invests in money market funds or short-term bonds to earn a return in the short-term, before ploughing your money into the stock market.
This phased approach reduces regret and helps you feel like you’re not “catching a falling knife” if a market pullback does materialise. It also gives you a chance to buy during dips if markets happen to crash.
You could even adjust the pace depending on market moves: if markets pull back, you might accelerate the later tranches but if momentum remains strong, then you can stay steady.
Some Guardrails When Investing
It’s important that we have a framework, or guardrails, in place when we invest. First off, it’s most important to stick to investing in assets that are aligned with your core portfolio (so low-cost, diversified ETFs.
Don’t try to “beat the market” with speculative bets just because your timing feels urgent. And if you do want to, use only a sliver of your overall portfolio to make these speculative bets. That way, if they don’t turn out as planned, they won’t do lasting damage to your wealth journey.
Second, be prepared for short-term volatility. Even after new market highs, pullbacks will inevitably happen at some point.
But, as outlined above, historical data show that large, sustained losses following new highs are rare. Indeed, one-year corrections of more than 10 % after a peak have occurred only about 9% of the time.
Finally, maintain discipline when you invest. Don’t let fear delay the execution of your broader financial plan. That means monitoring your allocation and, after you deploy all the tranches, rebalance if needed to stay within your target asset class weights (whether that’s in equities, fixed income, or alternatives).
Invest With Both Confidence And Caution
Markets at all-time highs can trigger doubt and fear. But history suggests that those doubts often come up at precisely the times when waiting carries real costs.
Dollar-cost averaging (DCA) gives you a framework that mixes prudence with the forward momentum provide by markets. If you hold a lump sum, splitting it into phases over 3 to 6 months (or maybe even a year) softens the psychological burden and gives you flexibility.
You don’t need to be perfect when investing. What you do need, though, is a plan, consistency, and the courage to act. That mindset will serve you far better than endlessly chasing “safer” entry points that might not ever show up.
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