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The author Fyodor Dostoevsky once wrote that “man only likes to count his troubles; he doesn’t calculate his happiness.” The idea that the glass is always half empty perfectly captures how many investors feel about the economy and financial markets, especially over the past few years. During recessions and bear markets, investors worry that the situation will never improve. When the economy and markets do recover, investors worry that it won’t last. In both cases, investors often find it difficult to stick to their long-term financial plans, regardless of the historical record. In today’s strong market environment, how can investors stay focused and invested?

The stock market has achieved several new all-time highs this year following last year’s bull market recovery.  The S&P 500 and Dow Jones Industrial Average are now 2.0% and 3.6% above their previous peaks from early 2022, respectively. While this is positive for investors, it’s natural to also wonder whether markets have run up too far, too fast. After all, it was less than a year ago when many investors and economists were predicting a recession and worrying about the rapid pace of Fed rate hikes. In this context, there are three important facts to keep in mind.

Finally, while it’s natural for investors to feel that they should wait for a market pullback before investing new cash or returning to the market, history shows that this can often backfire. The chart below measures the “opportunity cost” of being out of the market and waiting for a better price, compared to simply staying invested.

Waiting for a 3% pullback, for instance, has required being out of the market for 69 days on average across history. Over that period, the market rose much more than 3%, resulting in a missed opportunity of a 2.3% gain. In other words, it would have been better to simply have stayed in the market the whole time. Waiting for a 5% pullback requires 291 days and results in a missed opportunity of 13.1%. Similarly, waiting for 10% market corrections or 20% bear market crashes can take years. In all cases, the peace of mind that comes from sticking to a plan, rather than trying to time the market perfectly, is an added benefit.

Unfortunately, doing so requires battling our own tendency to see the glass as half empty when markets are rallying. Of course, none of this is to say that the market only moves up in a straight line during bull markets. Investors should always be prepared for market swings and unexpected events, as the past few years have demonstrated. However, it does suggest that it’s often better to avoid making rash decisions based on news headlines and the level of markets, and focus instead on sticking to a well-constructed portfolio, ideally with the guidance of a trusted advisor.

The bottom line? The market has achieved several new all-time highs this year due to steady economic growth. Investors should continue to stay focused and invested and not make decisions based on the level of major market indices alone.

Historical references do not assume that any prior market behavior will be duplicated. Past performance does not indicate future results. This material has been prepared by Kingsview Wealth Management, LLC. It is not, and should not, be regarded as investment advice or as a recommendation regarding any particular security or course of action. Opinions expressed herein are current opinions as of the date appearing in this material only. All investments entail risks. There is no guarantee that investment strategies will achieve the desired results under all market conditions and each investor should evaluate their ability to invest for the long term. Investment advisory services offered through Kingsview Wealth Management, LLC (“KWM”), an SEC Registered Investment Adviser. (2024)