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On Friday, the S&P 500 index closed above 5,000 for the first time, with investors remaining optimistic about subdued inflation, strong earnings and a resilient economy.
The number 5,000, in and of itself, is not a particularly important metric for a barometer of the overall U.S. stock market, other than being a large round number. But pushing markets to all-time highs is a sign that investors have confidence in the direction of the economy. Shares in the index have increased 5.9% since the beginning of the year and 23% in the past 12 months.
“At the end of the day, there’s still some surprisingly good news on the economic front, and markets are reacting to that,” Dana D’Auria, co-chief investment officer at Envestnet, told CNBC. “The longer this story goes on, the more likely the market will think we are actually landing here.”
The good news that the stock market is hitting new all-time highs will affect different investors differently. Some people may try to dump as much as possible into the market for fear of missing out on profits. To others, “all-time highs” may sound like the top of a cliff, an excuse to wait to invest until prices drop.
Financial experts say it’s best to avoid making major changes to your strategy based on short-term movements in the stock market. Also, if you invest regularly, there’s no need to panic just because the market is doing better than ever.
“Regular investors, especially young investors, should ignore headlines about the S&P 500 hitting a new all-time high,” said Kevin Brady, a certified financial planner at Wealthspire Advisors in New York City. says. “Why? Because that’s not unusual, and it means that record highs often lead to further highs in a short period of time.”
Why now is a good time to invest
There’s something counterintuitive about entering the greatest market of all time. After all, the motto in investing is “buy low, sell high.”
Market watchers will be quick to point out a few things on this point. First, just because the market is at a high doesn’t mean it doesn’t have the potential for further upside. In fact, the S&P 500 index has been in bullish mode about 85% of the time since his 1950s, and returns for investors that have risen over similar periods tend to be better than average.
Friday’s session marked the seventh time in history that the S&P 500 took more than two years to hit a new all-time high, according to Goldman Sachs. In his 12 months after each of these events, the index’s return averaged 13%, while his average unconditional return was 7.8%.
You don’t have to think too hard to understand what it means. Stock markets have historically trended upward. This means that in a bull market, all-time highs eventually create new all-time highs.
If we are at the beginning of a new bull market, “now is not the time to hit the snooze button,” says CFP and CEO of Ulin & Company Wealth Management in Boca Raton, Florida. ) says John Ullin.
Why it’s wise to stick to your plan
A financial planner can tell you that now is the best time to invest. Because now is always a good time to invest. That’s because throughout your life as an investor, it’s more important to give your money as much time as possible to compound than where exactly the market was when you invested.
That’s why news of the S&P 500 breaking through another barrier is exciting, but it doesn’t really change the way we approach the market, says Brandon, CFP and founder of Gibson Wealth Management. Gibson says. Texas.
“Young investors should focus on things they can control, such as broadly diversifying, investing regularly, and being careful with their spending,” he says.
Investing, especially on a regular basis, protects you from getting caught up in the daily ups and downs of the market.
Rather than trying to pinpoint the best time to invest (which is impossible even for professional investors), try a strategy known as dollar-cost averaging. Investing a fixed amount of money into your portfolio at regular intervals ensures that you buy more stocks when stock prices are low and fewer stocks when stock prices are high.
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