I ignore a lot of financial journalism.
Much of it is noisy clickbait and not relevant to the long-term goal-focused investor. In fact some have dubbed it “financial porn”.
But this headline, dated December 10th, 2021 from Marketwatch caught my eye:
The S&P 500 is an index (group) of stocks that includes 500 of the most valuable companies in the United States.
This index includes companies nearly everyone has heard of such as Amazon, Google, Microsoft, Facebook, Home Depot, and Tesla.
Except for Tesla I’ve used each of these company’s products and you probably have too.
The index went on to notch a total of 70 record closes in 2021. The highest close was on December 29th – closing that day at 4793.06.
It ended the year less than 1% below the record and was up nearly 29% for the year.
S&P 500 Index 2021
Recently, Dimensional,* a mutual fund company I use in my and my clients’ portfolios reviewed all-time market highs and noted the following:
- Many investors may think a market high is a signal stocks are overvalued or have reached a ceiling.
- However, they may be surprised to find that the average returns one, three, and five years after a new month-end market high are similar to the average returns over any one-, three- or five-year period as shown below.
To enlarge click here.
One of Dimensional’s VP’s Weston Wellington wrote additional commentary noting “journalists periodically stoke investors’ record-high anxiety by suggesting the laws of physics apply to financial markets…”
He goes on: “But shares are not heavy objects kept aloft through strenuous effort. They are perpetual claim tickets on companies’ earnings and dividends”.
He says, wisely, “Investors should treat record high prices with neither excitement nor alarm.”
Weston is a terrific writer and his article “All Time High Anxiety” is worth a read.
A final thought: the S&P 500 is frequently invoked as “the market”. However, a well-diversified global stock portfolio includes thousands of additional stocks including smaller companies from the US as well as large and small companies fromall over the world. Not all of these asset classes are hovering near their all-time highs.
Invest for the long term, diversify broadly, and ignore the noise.
*I receive no compensation from Dimensional.