The market has rarely looked more expensive; discipline is key in this market.
The S&P 500 (^GSPC -0.12%) has been on an absolute tear over the last two-and-a-half years. Since reaching the bottom of the bear market on Oct. 12, 2022, the benchmark index has climbed 76% as of July 3, 2025.
Investors who steadily put money into the stock market as prices declined in 2022 have made out like bandits. Even the returns of those who invested in 2023, 2024, and even earlier in 2025 have been great. That’s especially true if you took advantage of any pullbacks in the market like we saw in March and April this year.
But after a strong run in the market, investors may be wary of putting more capital to work as the S&P 500 sits at its all-time high. After all, there’s a lot of uncertainty around trade policies and ongoing international conflicts in the Middle East and Europe. It might feel like another bear market is right around the corner, and nobody wants to invest right at the market peak.
But history has a clear answer for whether or not you should invest in stocks when the S&P 500 hits a new all-time high, and it might surprise you.
Image source: Getty Images.
A new all-time high is more common than you might think
It’s not uncommon for the S&P 500 to close at an all-time high. Since its expansion to 500 companies in 1957, the S&P 500 index has set a new closing record 1 out of every 20 trading days.
That should make sense when you think about it. Investors expect stocks to increase in price over time. As such, they should trade at an all-time high quite frequently.
But the stock market doesn’t go up in a straight line. That’s what makes investing at an all-time high scary. The market can drop and stay down for a long time. The Japanese stock market, for example, spent 34 years below its all-time high from 1989. Even the S&P 500 spent most of the period between 2000 and 2013 below its all-time high.
On the other hand, new all-time highs tend to cluster together. The S&P 500 set four new all-time highs in the five trading sessions leading up to and including July 3 this year. And the momentum of the market typically carries stock prices higher once it sets a new all-time high.
Since 1950, investing in the S&P 500 on days when it reaches a new all-time high led to better-than-average returns over the next one-, three-, and five-year periods. If you go all the way back to 1929, the outperformance is even more dramatic. The S&P 500 produces an average total return of 205% in the 10 years following the index hitting a new all-time high since 1929. The average 10-year return for investing on all other days was just 137%, according to data compiled by investment consultancy Creative Planning.
The current bull market reached its first all-time high on Jan. 19, 2024. Since then, the index has climbed 30% to its new all-time high. That leaves a lot of upside left based on historical averages. Remember, the 205% average 10-year return is just an average. New all-time highs earlier in the bull run will typically produce even higher returns.
How to invest when the stock market is trading at an all-time high
When stocks, as a group, trade at or near an all-time high, it can become increasingly difficult to find good value in the market. It’s easy to find great bargains in a stock market crash as long as you have the discipline to trust your analysis and click the buy button. That same discipline is necessary for stock pickers when the entire market is more expensive. But you’ll have to resist the urge to buy a stock unless it offers compelling value.
There’s no doubt the S&P 500, as a group, is expensive right now, relative to its historical average. The index trades for a forward P/E of about 22, as of this writing. The historical average is in the mid-teens. That said, there are plenty of good values within the S&P 500 if you dig into the individual stocks.
But doing so takes a lot of knowledge, time, and effort. Investors who don’t want to expend those resources could stick with a simple S&P 500 index fund. After all, history is on your side.
A slightly better option could be an equal-weight S&P 500 index fund like the Invesco S&P 500 Equal Weight ETF (RSP 0.48%). Instead of buying each of the 500 components of the S&P 500 based on their weight in the index, the Invesco ETF buys an equal amount of each stock, rebalancing every quarter when Standard & Poor’s makes updates to the index. The result is a portfolio weighted more toward the smaller stocks in the index, which usually have more opportunities to grow.
The equal-weight index historically outperforms the market-cap-weighted index, but that hasn’t been true as of late. The bull market has been dominated by the biggest companies in the market getting bigger. And it’s unclear if and when that trend will reverse. But the equal-weight index also has a more attractive valuation right now, at around 17 times forward earnings, further tilting the odds in its favor.
Keep in mind, however, that investing in anything besides an S&P 500 index fund runs the risk of underperforming the index. If you want your fair share of the potential outsize returns from the S&P 500 typical of the index after hitting a new all-time high, stick with the standard index fund.
