Long-term investors should refrain from trying to time the market since record market highs can often lead to false patterning, said Mark Matson, CEO of Matson Money, a Cincinnati investment manager with $5.9 billion in assets.
“There is zero correlation relative to where the market will be three months from now and it being at an all-time high,” he said.
Record highs in the market do not mean a bubble is on the horizon, Matson said.
“If investors are waiting for a clear sign that the market can only go up before they get in, they are going to be waiting for a very long time,” he said.
Investors should avoid rebalancing their retirement portfolios often because the returns after stocks have hit an all-time high is nearly equal. The monthly data of the market since 1926 shows that 286 out of 1,006 months hit an all-time high. The subsequent five year return following a market high is 9.11% annualized compared to all other months at 10.11% annualized.
“The return is roughly the same, so investors should allocate to equities for the long-term regardless of whether the market is at an all-time high or not,” Matson said. “Humans are extraordinarily bad about perceiving patterns when they don’t actually exist because we want to see them.”