Nervous about investing during a market high? The evidence suggests you shouldn’t be

When markets deliver strong growth and reach new highs, it's natural to assume a downturn is imminent. After all, what goes up must come down, right?

This presumption may cause you to be hesitant about making new investments or could even tempt you to sell off assets in anticipation of a decline. In short, reaching a record high could influence you to try and time the market.

However, research by Schroders on US stock market data between January 1926 and December 2023 found that returns in the year following market highs tend to be stronger than at other times.

Moreover, market highs tend to occur more often than you might think, and the evidence suggests that being overly cautious amid strong performance is unlikely to benefit you in the long term.

Read on to discover why you shouldn’t be nervous to invest when markets are high.

Markets frequently reach new all-time highs

Although all-time highs are usually followed by a small dip, they are a regular occurrence in stock markets, often happening multiple times a year.

For instance, data from Trading Economics shows that the UK stock market reached a new all-time high this month (March 2025), following previous highs in both January and February. Similarly, further reporting from Trading Economics reveals that the US stock market also saw new highs in the first two months of 2025.

Schroders' research on the US stock market found that all-time highs are more frequent than many investors assume. Between January 1926 and December 2023, the market reached an all-time high in 354 out of 1,176 months, equivalent to over 30% of the time.

So, while markets often dip slightly after a peak, staying invested is typically more beneficial than selling off assets in anticipation of a downturn. Indeed, the data shows that a new peak has historically often just been around the corner.

Returns in the year following all-time market highs are typically better than at other times

In addition to market highs being a fairly common occurrence, research also reveals that returns typically continue to be strong after a peak and regularly outperform other averages.

Schroders' analysis of nearly a century of US stock market data shows that, on average, 12-month returns following all-time highs outperform those during other periods.

The graphs below compare the average inflation-adjusted returns in the one-, two-, and three-year periods after an all-time high in the US stock market between January 1926 and December 2023. Alongside these are the average returns for the same time horizon at all other times.

Source: Schroders

As you can see, returns in the year following an all-time high were 1.7% better on average compared with average annual returns at all other times.

Over two- and three-year periods after all-time highs, returns were broadly the same as in all other times.

So, though you may fret about the potential for your returns to fall after a market high, the data suggests that, typically, the opposite is true, and returns are at their strongest in the period following a peak.

Exiting the market for cash after an all-time high would have historically cost you over the long term

Schroders' research also outlines the long-term benefits of staying invested compared to exiting whenever the market reaches a new peak.

If you had invested $100 in the US stock market in January 1926, your investment would have grown to $85,008 by December 2023, adjusted for inflation. This represents an average annual return of 7.1%.

By contrast, if you had liquidated your investments every time the market hit an all-time high, and then reinvested only after a drop, that same $100 would be worth just $8,790, a full 90% lower.

While this is an extreme scenario, it highlights the potential downside of trying to time the market by exiting during highs, and the same principle applies over shorter, more realistic time frames.

For instance, if you invested $100 in US stocks 10 years ago, it would have grown to $237 by 2023. However, if you had sold off after market highs and reinvested later, you would have been left with just $181. Over 20 years, the gap is even more pronounced, $382 versus $255.

Of course, the difference can be more extreme with bigger investments.

The data suggests that rather than reacting to new highs and attempting to time your exit, maintaining your investments could lead to stronger long-term returns.

Get in touch

If you want to find out more about why you shouldn't be afraid to invest during market highs or the risks of attempting to time the market, get in touch.

Email info@mlpwealth.co.uk or call us on 020 8296 1799.

Please note

This article is for general information only and does not constitute advice. The information is aimed at retail clients only.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.