Should You Buy Index Funds at All-Time Highs?

Summary

This video script explores the concept of investing at all-time highs, drawing parallels between the stock market and the achievements of pole vaulter Sergey Bubka. It challenges the fear of investing at peak levels, using historical data to show that markets often perform well post all-time highs. The script also discusses the pitfalls of a 'switching strategy' and emphasizes the importance of long-term investment, suggesting that new highs can inspire further progress, both in sports and finance.

Takeaways

• 📈 Global and American index funds, including the S&P 500, are currently at all-time highs, driven by a few mega companies.
• 🤔 The concern about investing at these highs is common, but historical data suggests that all-time highs are not unusual and markets often perform well afterward.
• 🏅 The story of Sergey Bubka, a dominant pole vaulter, illustrates the idea that reaching new heights can be followed by even greater achievements, not a peak.
• 📊 Historically, the S&P 500 has set over 1,250 all-time highs since 1950, showing that peaks are a regular occurrence in the market.
• 🔢 After reaching an all-time high, the chances of the S&P 500 being down more than 10% decrease significantly over time, being 9% at 12 months, 2% at 3 years, and 0% at 5 years.
• 💡 Long-term investment horizons can mitigate the effects of short-term market declines, as time in the market is a key factor for growth.
• 💼 Research indicates that many retail investors, especially younger ones, are increasing their cash positions, possibly missing out on the benefits of investing in the stock market.
• 📉 A strategy of moving to cash at all-time highs and returning when the market has pulled back can significantly underperform a 'buy and hold' strategy, as demonstrated by a hypothetical 100-year investment scenario.
• 🚀 The 12 months following an all-time high have historically been a period of strong performance for large-cap companies, suggesting that being out of the market during this time could mean missing out on gains.
• 🤷‍♂️ Investors' fears of investing at market highs may be misplaced, as waiting for a perceived 'better time' could lead to further inaction during market downturns.
• 🌱 Peter Lynch's quote about always having something to worry about in investing highlights the importance of not letting fear dictate investment decisions and recognizing the potential for ongoing growth even after record highs.

Q & A

What is the current situation with global index funds and the S&P 500?

Global index funds and the S&P 500 are currently at all-time highs, with the performance being driven by a handful of mega companies whose values have reached unprecedented levels.

What did Peter Lynch say about the market and should we be worried about investing at all-time highs?

Peter Lynch famously said there's always something to worry about, suggesting that despite market highs, it's not necessarily a reason to avoid investing, as there are always concerns in the market regardless of the time period.

Who is

Outlines

00:00

📈 Market Highs and Investment Strategies

This paragraph discusses the current high valuation of global index funds and the American S&P 500, noting the influence of a few mega companies. It raises the question of whether it's wise to invest in index funds at these highs, referencing Peter Lynch's advice. The script also draws a parallel to the world of sports, specifically pole vaulting, where Sergey Bubka's dominance led to a unique sponsorship deal with Nike, incentivizing him to break world records. The summary emphasizes the importance of understanding market behavior over time and the potential for continued growth, even after reaching new highs.

05:01

🏆 The Consequences of All-Time Highs

The second paragraph explores the concept of all-time highs in the context of long-term investment. It uses historical data to show that all-time highs are not unusual and often lead to further growth. The summary points out that investors who avoid the market at these peaks based on fear of a pullback could miss out on significant gains. It also highlights the negative impact of a 'switching strategy' that moves investments in and out of the market at peaks, which historically has led to substantial losses. The paragraph concludes with a reminder that records, whether in sports or the market, are meant to be broken and that reaching new heights can inspire further progress.

10:06

🎉 The Celebration of New Records and Market Optimism

In the final paragraph, the script reflects on the psychological impact of reaching new records, both in sports and financial markets. It suggests that achieving new highs can boost confidence and lead to even greater achievements. The summary discusses the potential for markets to perform well after reaching all-time highs, using the example of large-cap companies' performance in the year following such milestones. It also addresses the common investor behavior of waiting for a market dip before investing, questioning whether this is a rational strategy or simply a response to fear. The paragraph ends by invoking Peter Lynch's philosophy that there is always something to worry about in investing, but this should not deter participation in the market.

Keywords

💡Global Index Funds

Global index funds are a type of investment vehicle that aims to replicate the performance of a specific index, which may include a broad range of companies from various countries and industries. In the video's context, it discusses the high valuation of these funds and the dilemma of investing in them at all-time highs. The script mentions that these funds have never been valued higher, indicating a potential concern for investors considering the timing of their investments.

💡S&P 500

The S&P 500, or Standard & Poor's 500, is a stock market index that measures the performance of 500 large companies listed on stock exchanges in the United States. It is often used as a benchmark for the overall U.S. stock market. The script highlights that the S&P 500 is at all-time highs, which is a central theme in discussing market performance and investor behavior.

💡Mega Companies

Mega companies refer to very large corporations that have a significant impact on the economy and financial markets. In the script, it is mentioned that the performance of the S&P 500 and global stock markets is driven by a handful of these mega companies, whose values have reached unprecedented heights, contributing to the current market highs.

💡All-Time Highs

All-time highs refer to the highest levels ever reached by a financial market or investment. The video script discusses the frequency of all-time highs in the stock market and the implications for investors who buy at these peak levels. It is a key concept in understanding market sentiment and investment strategy.

💡Investment Timing

Investment timing is the strategy of choosing when to enter or exit an investment with the goal of maximizing returns. The script questions whether it's wise to invest in index funds at all-time highs, suggesting that timing the market can be a complex issue for investors.

💡Pole Vault

Pole vault is a track and field event where athletes use a long, flexible pole to jump over a high bar. The script uses the achievements of pole vaulter Sergey Bubka as a metaphor for surpassing limits and setting new records, which parallels the discussion on market performance and the potential for further growth.

💡Sergey Bubka

Sergey Bubka is a retired Ukrainian pole vaulter who set multiple world records and dominated the sport for over a decade. His story is used in the script to illustrate the idea of breaking records and pushing boundaries, which is relevant to the discussion of market highs and the potential for further increases.

💡Risk Management

Risk management in investing involves making decisions to minimize the probability of negative outcomes while still achieving investment goals. The script touches on the apprehension of investors about investing at all-time highs and the potential risks involved, as well as the importance of taking risks, especially for younger investors.

💡Market Performance

Market performance refers to how well a financial market or investment is doing over a certain period. The video script analyzes the historical performance of the S&P 500 following all-time highs, showing that markets tend to perform well after reaching such peaks, which is crucial for understanding investor behavior and market trends.

💡Record Run

A record run describes a continuous period of success or achievement that surpasses previous records. In the context of the script, it refers to the S&P 500's performance, which has been at record highs, indicating a prolonged period of market growth and success.

💡Peter Lynch

Peter Lynch is an American investor and the former manager of the Fidelity Magellan Fund, known for his investment philosophy. The script references a famous quote by Lynch about always having something to worry about in investing, which is used to discuss the perennial concerns investors have and how these concerns can affect investment decisions.

Highlights

Global index funds and the American markets, including the S&P 500, are currently at all-time highs.

Performance of these markets is primarily driven by a few mega companies with unprecedented valuations.

Peter Lynch's famous saying suggests that there's always something to worry about in investing.

Sergey Bubka's surprise victory in pole vault at the 1983 World Athletics Championships marked the beginning of his dominance in the sport.

Nike's innovative sponsorship deal with Bubka incentivized him to break world records rather than just win competitions.

Bubka's financial strategy led him to break the men's pole vault world record 35 times during his career.

The American market has been at all-time highs 30% of the time since January 1926.

The S&P 500 has set over 1,250 all-time highs since 1950, averaging about 17 a year.

Investors face a 9% chance of being down more than 10% one year after an all-time high, which decreases to 2% over three years, and to 0% over five years.

Research indicates that 39% of retail investors are increasing their cash positions, with a higher trend among younger investors.

A 100-year investment study shows that a $100 investment would be worth $85,000 today, compared to only $879 with a switching strategy out of stocks at all-time highs.

Markets tend to perform well after reaching an all-time high, with large cap companies showing the best average performance in the 12 months following such highs.

Peter Lynch's quote encourages investors not to let market highs deter them from participating due to fear.

The current pole vault world record is higher than Bubka's, illustrating that records are meant to be broken and heights surpassed.

Despite Bubka's tarnished reputation in Ukraine due to Russian connections, his athletic achievements remain a testament to human potential.

Investors are encouraged to consider the historical performance following all-time highs and the potential for continued growth rather than fear-driven inaction.

Transcripts

the global index funds that I invest in

on a regular basis have never been

valued higher than they are right now

give or take a little bit same for the

American markets the S&P 500 is

basically at all-time highs a record run

here for the S&P record highs record

highs if we dig under the hood we see

that the performance of the S&P 500 the

whole American Market even the global

stock market is been driven by a handful

of Mega companies whose values have just

touched Heights never seen before Peter

Lynch famously said there's always

something to so should we be worried

about throwing our money into these

index Investments at alltime highs

should we instead wait for the

inevitable pullback before we invest

that is what we're going to discuss

today well that and pole vating I hope

that's okay with

you back in

time it's

1983 welcome from Helsinki This

Magnificent Stadium host today the first

Helsinki hosts the world Athletics

Championships and as Titans of track and

field like Carl Lewis do their thing a

little known P vter called Sergey bbka

snatches gold in a surprise Victory this

Victory would start a trend of complete

dominance of the sport for the next

decade oh the world record has gone this

guy was good so good in fact it said

that his competition essentially gave up

competing against him this posed a

problem for his sponsors Nike who would

typically pay out every time an athlete

won but this guy always wins so what do

we do how about instead of paying him to

compete with everyone else we pay him to

compete with himself Nike didn't

incentivize bubka to go higher in the

competition than his competitors but

higher than anyone's ever been before so

it's a new world record hike for bubka

oh and he goes clear $100,000 every time

he broke a world record bubka was as

financially Savvy as he was good at

flinging himself in the air so do you

know what he did he set the world record

for the men's pole vault around 35 times

during his career just moved it up 1

cimeter at a time two World Records in

two successive FS 200 G's for that much

space Oh the world record has gone while

I'm sure that Nike were happy with their

athlete you can't help but feel that

they might have underestimated his

potential to keep going higher bobco was

the first man to ever cross the 6 meter

range when you compare that to the first

official record of 3.15 M set by Francis

temple in 1849 seems like a ridiculous

achievement this constant progression of

the pul Vault world record over the

years demonstrates how in all walks of

life we continue to doubt the potential

of humans to reach Greater Heights and

this is something that is core to our

discussion today okay now we'll get to

the important stuff of the

1,176 months since January 1926 the

American Market has been at all-time

highs in 354 of them 30% of the time

since 1950 the S&P 500 has set

1,250 all-time highs that means it's

averaged about 17 a year that's what

this looks like by decade so it's clear

that alltime highs happen all of the

time and I think that's the first thing

to understand here they're not unusual

even though the media likes to make a

massive song and dance about them when

they happen record run record highs

record highs what I want to understand

now though is following an all-time high

when the market is at its peak is that a

good time to buy looking backwards which

I know is no indication of what might

happen going forwards but it's all we've

got what are the chances that investors

who buy at an all-time high end up down

in the Years following we'll be using

the S&P 500 again for this because the

data is widely available and because the

American Market currently makes up about

65% of the global stock market so it's

going to be crashes in this market that

leads to declines in portfolio

performance I buy a global index myself

and Below I've linked a document that

goes over the most popular Global and

American Funds on each of the major

brokers in the UK if you want to copy

these three pie charts put together by

RBC Global Asset Management look How

likely it was for the S&P 500 to be down

more than 10% from all-time Highs at

different time periods so take any

alltime High since 1950 go out 12 months

and there's a 9% chance that you're down

10% or more extend that timeline to 3

years and the chances are only 2% and at

5 years the chances of your portfolio

dropping 10% from an all-time high was

Zero time with investing as always is

your friend here and longer time

Horizons tend to correct for bad luck if

you're a person that invested at an

all-time high and then markets decline

but even still a 9% chance over 12-month

period it's pretty good odds but many

investors are still apprehensive it

would seem research of of 10,000 retail

investors by Toro found that 39% of them

are actively increasing their cash

positions at the minute with the trend

among younger investors being the

highest where 60% are focusing on cash

Holdings higher interest rates on cash

are clearly an attractive proposition

especially if it's from emergency funds

fine but I do worry that younger

investors are seeing higher returns in

cash as an opportunity and not realizing

that at their age it's the very best

time to be taking risk and putting your

money to work in the stock market I

found this bit of research from ERS that

it's a bit of a weird scenario that they

go through that probably is quite

unlikely but I still think it serves to

prove a point perfectly they took an

investing timeline of 100 years from

1923 to 2023 and said if you plunked

$100 at the start and left it what would

it be worth the answer is 85,000 roughly

today okay next they said anytime the

market was at alltime Highs at the end

of the month let's move out our

investments into Cash until it isn't

alltime highs they call a switching

strategy so you switch out of stocks

Into Cash equivalent that you generate

interest on and then you put it back in

when the market has pulled back from the

all-time high essentially you look to

miss the inevitable dip what would that

do to Performance the answer is a 90%

decline in the value of your Investments

over the period with this switching

strategy leading to a portfolio of

$879 with markets at all-time highs and

cash saving rates being the best they've

been in years I can see why investors

might say well I'll just wait and get my

interest here but this cautious approach

fails to recognize that alltime Highs

are very common and that markets tend to

perform well after the market has

reached an all-time high bbka hitting a

world record was not a sign of him

reaching human potential more an

indication that the human species had

the ability to go even higher it's often

typical when a world record is broken

that then it's broken again in quick

succession straight after look at

another set of elite athletes in the

sport of

[Applause]

Tetris I know that sounds like I'm

taking the P but honestly I watched a

documentary on these guys the other days

they are athletes they are doing mic

with Tetris it was thought that the game

was impossible to complete that's until

this teenager did it 34 years after the

game was invented and then just 3 weeks

later two other players have beaten the

game three and a half decades and no one

have come close then three separate

people do it in three weeks alltime

highs lead to alltime highs because it

gives us playing the sport game or

markets the confidence that it is

possible the logic of it's high at the

minute so it will drop soon kind of

doesn't stack up you can see here that

the 12 months following an all-time high

us large cap companies have their best

average performance so in the 12-month

period after the all-time high this is

when on average these companies perform

best being out of the market and waiting

for things to come down means you

potentially miss out on this favorable

Trend I question if people sitting on

all this cash waiting for a crash have

considered the fact that 12 months after

an all-time high tends to be a good time

to be in the market look I think it's

very natural to be concerned when

markets are all time highs that you're

buying at the wrong time but serious

question let's say the market started

tailing down now and did that for 12

months would you then be sat there going

well now's the perfect time to buy this

is what I've been waiting for or would

you just be sitting there going oh god

um I think I'll wait for things to

recover a little bit before I get

involved are your concerns genuine or

are they just born out of fear coming

back to that quote from Peter Lynch

there's always something to wor I

purposely frame that negatively to make

it sound like a negative quote but let

me just play you a section from his

famous speech we stop worrying about it

I there's always something to worry

about in the 50s it was depression and

nuclear war the 50s was the best decade

this Century except for the ' 80s

there's always something to worry about

with investing something that you can

point to to convince yourself to not

participate threats of nuclear war

famine oil prices LZ trust let's not

make the fact that the markets are doing

better than they've ever done before one

of those things people have been asking

this question now for decades I mean

just on YouTube alone you see videos

stretching back years trying to answer

the current market high at the time was

a good time to buy the answer is we sit

here today at current alltime highs was

of course yes it was a good time to buy

there will be periods of

underperformance of course there will be

periods when the value of your

Investments Falls versus what you've put

in and you might go years between new

all-time Highs but eventually we will

hit new all-time highs records will be

set Sergey bubka's Legacy his impact on

the sport of pole vating sits there for

all to see a period of complete

dominance as one man Rose above his

sport to become a towering figure in

post Soviet Ukraine one of the greatest

athletes of all time but as is so often

the case what follows New Heights can

often be Great Falls bubka's record in

the eyes of the Ukrainian people has

been tarnished by his connections to

Russia a name that once represented

freedom and potential now sits in the

mud but what of bubka's Records remember

this man was so dominant that his

competitors saw it as almost pointless

to compete so was that it was that the

summit of the

sport I don't think so speaking of World

Records

dtis is it on oh that's ridiculous the

current world record for the pole vault

is 10 cm higher than bubka ever achieved

and do we think it will stop there do we

think the athletes the markets or even

the human species won't just keep

finding ways to raise that bar on marks

get

set go

the market started to rally and rallied

sharply to take the world

[Music]

title packages of 10 and 50

million could we see a world record

they're ahead of world record where do

you think the upturn will stop