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Are record-high share markets a good thing?

Sebastian Bowen
Planting a flag at the top of a mountain

We had breaking news this morning that all 3 of the major US stock market indices had once again busted their previous record highs. The S&P 500 and the Nasdaq managed to book record closing prices as well, while the Dow Jones Industrial Average managed a new intra-day high, which it wasn’t quite able to sustain at market close.

Back home, both the S&P/ASX 200 (INDEXASX: XJO) and the ALL ORDINARIES (INDEXASX: XAO) are still consolidating the records they set at the start of the month, but have both pushed higher today by about 0.6% each.

So are these moves a good thing for investors? The answer seems obvious, but might be more nuanced than it first appears.

For most Aussie investors, the markets being at all-time highs is a good thing – provided you’ve got most of your capital invested in shares and not cash. Apart from the ASX banks, most of the top Aussie blue-chips like Woolworths Group Ltd (ASX: WOW) and Fortescue Metals Group Limited (ASX: FMG) are near 52-week highs. ASX growth shares like Xero Limited (ASX: XRO) have also been firing on all cylinders.

But for anyone who is looking to get started with an investing portfolio or even to deploy extra capital into the markets, the picture is a whole lot less rosy. The ASX 200 has banked a gain of nearly 26% year-to-date (including dividends), which is well, well above its long-term annual average of around 9%.

This indicates to me that the chances of another year of record gains is a lot lower than a year of below average gains. Of course, trying to predict what the markets will do next year or even tomorrow is a fool’s game (and not the good kind of Fool). But in my view, these statistics are worth paying attention to, nonetheless. Maths is one of the most honest disciplines out there, after all.

So I think its always a good idea to keep your feet in both camps. Invest in shares, but keep some cash on the sides as well. If there is a down year next year, at least you’ll have the chance to pick up your favourite companies at a better price!

Foolish takeaway

At time of stock market elation, by all means celebrate your newfound wealth. But I personally think a good dash of perspective is also a healthy thing. So invest with caution, choose your shares well and carry on. You never know, next year might be even better!

The post Are record-high share markets a good thing? appeared first on Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of Xero. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019