What Does a Stock Market “All Time High” NOT Mean?

Stock Market “All Time Highs”

Incredibly, the stock market recently hit an all-time high. This has come shortly after the market recorded one of the fastest bear markets in history back in March.

With the market at an all-time high, knowing what this does not mean is vitally important. Here are 3 things to consider:

 

Authors: Anthony Saffer CFP®, CKA® and Alex Okugawa CFP®, CKA®, CEPA®

Full Transcript:

Alex: Hi there, and welcome to One Degree advisors where we help families cut through the noise to make confident financial decisions. Anthony recently we’ve been seeing in the news, you know, those these headlines come out the S&P 500 now breaks again all-time highs and I think what happens a lot of people a little bit they don’t fully understand the context of what this means.

They go “Oh all new time highs! The stock market is secure! I mean things are just locked in, now is the time to go all in on the stock market”, but I think we need to take a step back and really understand.

What does it mean when a stock market hits a quote “New High”

 

Anthony: Yeah, or maybe the better question is even what does it NOT mean? Back in March, you know, the market was going down significantly as the fastest bear Market. I think it was like 35%, tanked down. No one was predicting the recovery that was coming back up and stocks have really recovered to the point of a new high and this does not mean you’ve made a bunch of money. You know, because yes, we’ve had a significant recovery. But remember the first time we get to a new high what that really means is we’re back to where we were and we’ve just kind of scratched through

 

Alex: It basically took a long journey to go. Okay, we are back.

 

Anthony: Exactly, Exactly. So my point being is that yes, we rode the recovery back in. Hopefully, you didn’t get out at the bottom. But what it really means is we are just back to where we were or just a little bit past it.

 

Alex: But here’s what I think the problem is at least for most folks again is that we hear this headline news, especially again most investors. They are not in this world. They do not do what we do on a day-to-day basis. And so, you know, they’re walking down the street and they see some signs that says, you know, S&P 500 at all-time highs and they go well, I’m invested awesome. My portfolio is at an all-time high. But again that may not necessarily be the case.

 

Anthony: Yeah, so we did not expect the recovery. You know that or people didn’t necessarily expect the recovery that we may have had but we are back to it and we’ll take it. Number two thing is that you know when the news puts it out and says stock market set an all-time high. Well, they may be talking about a certain index like in this case the S&P 500 which is really just a representation of the stock market 500 largest companies that are out there that particular index is one measurement and there’s a lot more that’s out there and so depending on the specific index that’s being talked about like a more broadly diversified Investment portfolio may not be at the same levels and that’s what really what we’ve seen because the S&P 500 in a lot of ways has been top dog out there just in terms of what it actually holds.

Alex: So again, I think one of the things that I always think about it, it was funny because I think there’s a funny meme on this the other day and I was looking at it and it’s this person sitting by a computer and it goes alright the S&P 500 is at all-time highs, now I’m going to get back in the market. Right and I think people have that. I think it’s just human nature like we want to see things are getting better before we quote “jump back in the market”, but sometimes it’s like the worst thing to do. We’re going to jump out when things look bad. We’re going to jump back in when things look good. When they’re at their quote ” All-time Highs”, but unfortunately, I think that’s what a lot of people do when they’re you know, thinking about investing.

 

Anthony: Yeah. Hopefully you didn’t miss the recovery that came about but another thing of what is a new all-time high not mean is that the coast is clear like, okay now we’re good now we can invest everything’s going to go back up from here. We don’t know what tomorrow is going to look like just because we’ve had recovery and we hit a new high doesn’t mean that tomorrow can’t go down or maybe it’ll go up.

It’s not a prognostication one way or the other. It’s just what happens has happened. And what comes tomorrow we don’t exactly know

Alex: Absolutely, so again some big key takeaways again.

What does it not mean?

It doesn’t mean that you know, your portfolio is exactly the index right unless you put all your money in the S&P 500. That’s not the case again. We’re just looking at this is where we were basically, you know a while ago, you know, we’ve taken a long journey to get back to where we were before and then again, it doesn’t mean that the coast is clear. We still must look cautiously as we continue to invest and making sure that our investment plan is aligned with our financial plan. That way they are not taking too much risk or too little risk as we head into the future. We want to make sure everything is aligned. So that’s awesome. Thank you, Anthony.

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