With The Market Reaching Record Highs, Should You Sell Yo…

Index

S&P 500 Index

Today’s Change

(-0.45%) -34.29

Index Level

7,640.08

Key Data Points

Day’s Range

7,640.08 – 7,663.46

52wk Range

6,316.91 – 7,816.70

What is fueling the market’s current run?

Much of the market’s current run can be traced back to the artificial intelligence (AI) boom we’re currently witnessing. Investors have piled money into the major tech companies responsible for many of the AI developments.

On one hand, many of these companies have rewarded investors handsomely as their valuations surge. On the other hand, the S&P 500 is as concentrated as it has ever been. The “Magnificent Seven” stocks — Nvidia, Apple, Microsoft, Amazon, Alphabet, Meta Platforms, and Tesla — now account for a third of the index, which isn’t ideal for diversification but has worked in the index’s favor over the past few years.

Just this year, the S&P 500 has set 27 all-time highs.

Date	Record Close
Jan. 7	6,920.93
Jan. 12	6,977.27
Jan. 27	6,978.60
Feb. 25	6,981.45
April 15	7,022.95
April 16	7,041.28
April 17	7,126.06
April 22	7,137.90
April 24	7,165.08
April 27	7,171.91
April 30	7,209.01
May 1	7,230.12
May 5	7,259.22
May 6	7,365.12
May 8	7,398.93
May 11	7,412.84
May 13	7,444.25
May 14	7,501.24
May 26	7,519.12
May 27	7,520.36
May 28	7,563.63
May 29	7,580.06
June 1	7,599.96
June 2	7,609.78
Aug. 4	7,736.52
Aug. 7	7,757.64
Aug. 13	7,798.99

Data source: Google Finance.

Except for the Aug. 13 high, had you sold any of your S&P 500 s during one of these all-time highs, you would have missed out on eventual gains afterward. Admittedly, it’s easy to say this in retrospect, but it shows why it’s important to stay invested, even when the market reaches record highs.

The great times won’t last forever

It’s worth noting that it’s a matter of when the market has a downturn, not if. Since 1928 (right before the Great Depression), there have been 27 bear markets, averaging 3.5 years between them. They’ve been less frequent since 1945, with 15 since then and an average of 5.1 years between them.

The good news is that bull markets usually last a lot longer than bear markets, giving investors time to recover and continue building wealth. The average length of a bear market is 289 days, while the average length of a bull market is 988 days.

That’s why it’s important to ride out any downturns, because the upside usually outweighs the short-term market drops. According to Ned Davis Research, around 42% of the S&P 500’s strongest days in the past 20 years have happened during a bear market. You don’t want to abandon your investments and miss potential gains.

Someone looking at a newspaper.

Image source: Getty Images.

Focus on consistency

You should avoid trying to time the market because it often does more harm than good. The market is notoriously irrational, and just because it “should” decline or increase doesn’t mean it will. If it were easy to time the market, it would be rare to see Wall Street companies with tons of knowledge and resources underperforming and losing money.

The best thing investors can do is remain consistent through the ups and downs. That’s easier said than done, yes, but one strategy that helps is dollar-cost averaging. When you dollar-cost average, you essentially put yourself on an investing schedule that you stick to regardless of what’s happening in the market.

For example, if you have $500 you can invest monthly in an S&P 500 ETF, you could choose to invest $125 every Friday, $250 every other Monday, or $500 at the beginning of each month. The frequency should match your financial situation, but what’s important is sticking to your schedule.

You’ll inevitably invest when the market is rising and falling, but the key is trusting that it’ll play out in your favor over time. Nothing is guaranteed in the stock market, but history shows it’s one of the best ways to build wealth over time.