November 1, 2017
Are we at the top yet? Selling near stock market highs and locking in profits is always tempting, especially when the current bull market is one of the longest on record and seemingly puttering out. Yes, this might be the perfect time to sell, however, let’s look at the long term odds first.
According to Check Capital’s research, the Standard & Poor’s 500 Index (S&P 500) has advanced in 78% of the years since 1950 (or about 4 out of every 5 years). Further, 95% of every five years – and 100% of each decade – since 1950 have led to a new high. These statistics are true even though the S&P 500 has had an average of 14.2% annual peak to trough dips. Volatility is normal. While the average S&P 500 annual return has been about 10%, annual returns in the 5% – 15% range surprisingly only happen about 20% of the time so expect big price swings. If your investment time horizon is longer than a few years, betting against these odds is dangerous. But sitting through another multi-year decline is equally unsavory. What to do, then?