Following the notable gains in both Canadian and U.S. equity markets in 2024, some investors may feel hesitant about putting money to work in the market. Here are three perspectives that may surprise you about investing after periods of strong market performance:

1. New market highs may be more common than we think. Many investors may be concerned that a market reaching new highs signals an imminent downturn. However, new highs often reflect ongoing growth in economies and corporate profits. A look back at the S&P 500 shows that since 1950, there have been more than 1,250 all-time highs, averaging more than 16 per year.

While some may worry that a large correction typically follows new highs, history suggests otherwise: the S&P 500 has finished down more than 10 percent (often considered a market correction) only 9 percent of the time within a year following these highs — and the likelihood decreases over longer timeframes.¹

2. Investing at all-time highs doesn’t lead to substantially lower returns. Many investors worry that investing at market highs might mean “buying at the top,” but a closer look at the S&P 500 since 1950 shows that returns when investing only at market highs are, on average, comparable to investing at all other times over one-, three-, and five- year periods (chart, bottom).¹ This may reinforce the importance of consistently investing rather than attempting to time the markets.

3. High market concentration doesn’t mean prolonged periods of lower returns. The recent market strength, largely driven by the tech mega-cap stocks, has led some market prognosticators to warn of a potential “lost decade” for U.S. stocks. Yet, historical analysis may suggest otherwise. A study of over 200 years of U.S. stock market history found that periods of rising concentration often aligned with ongoing bull markets, as dominant sectors reflected the prevailing innovation, such as the technology sector today.² This sector dominance often persisted for extended periods, in many cases multiple decades. Another analysis over 90 years shows that S&P 500 rolling 10-year returns below 3 percent have been extremely rare, mainly occurring during severe economic challenges like the Great Depression, 1970s stagflation and the Great Financial Crisis.³

These perspectives may offer a more balanced view of investing after periods of strong market performance. This is not to suggest that the recent rapid gains will continue at the same pace; indeed, we may find ourselves in a period where strategic security selection is even more important — and this is where our work as advisors shines through. Enjoy the gains we’ve recently experienced and continue to look forward, building wealth for the future.

^{1. https://www.rbcgam.com/en/ca/learn-plan/investment-basics/investing-at-all-time-highs/detail; 2. https://globalfinancialdata.com/200-years-of-market-concentration; 3. https://awealthofcommonsense.com/2024/10/3-stock-market-returns-for-the-next-decade}

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