As the second longest bull market in U.S. history continues, many investors are worried about when the inevitable downturn will occur. While few investors enjoy market “corrections,” long-term investors understand they are inevitable, can be expected every couple of years, and are part of the necessary tuition to participate in the stock market.
We hear concerns about the market often and its inevitable future downturns. One specific worry we hear is that “the market is at an all-time high.” This is concerning to some because they fear that if the market is at an all-time high, then it must be at its tipping point, ready to turn at any moment; what goes up, must come down, right? Not always. The price of the “market” is a representation of the health of the current (and expectation of the future) overall economy; the reason the market goes up over time is that the economy grows and improves. For example, compare the iPhone X to the very first iPhone. To say that Apple has improved is an understatement. The reason the market is at an all-time high today is because the average standard of living is also at an all-time high and most likely always will be. To argue that the market will fall and stay down is akin to arguing that the iPhone XX will be an inferior product to the iPhone X. Possible, but not likely.
So, what do you believe about the future? Do you think humankind will be better off 20, 50, or 100 years from now? Will technologies continue to improve? Will our ability to provide healthcare improve? Will our ability to grow food and feed people improve? Or will we as a population decline? If you believe that the future will be better than the past, then, apart from the latest zig or zag, you can expect that the market will always be at an “all-time high.”
Additionally, not only is the market continuing to rise as our future improves, it has proven to be quite resilient. Humanity has always been plagued by natural disasters, wars including trade wars, bankrupt governments, corrupt governments, etc. (all of which have been especially abundant in the past 100 years). Nevertheless, the market, like a large locomotive, chugs on.
To help illustrate these points, watch this three-minute video: https://youtu.be/cHuZ75Re4kM, which shows how $1 invested in the total U.S. market grew from 1927-2017, during a century that was not immune from trial. Over this period, the U.S. went through 15 recessions or depressions, World War II and the Vietnam War, and many other crises big and small. Yet $1 invested in 1927 could have grown to more than $6,229 by the end of 2017. As the video validates again and again, short-term news events and downturns generally have had little long-term effect on the market’s long-term growth.
That’s the power of free markets powered by human innovation to create long-term wealth.