The S&P 500 all-time high and how often the index hits a new all-time high is a really fascinating data point that is an important data point to remember as you consider long-term investing. The S&P 500 hits a new all-time high only 5% of days that the stock market is open for trading. This means that 95% of trading days, the S&P 500 is below its previous all-time high. Another way to look at this is that for investors that are tracking the overall market via things such as index funds, your portfolio is underwater from its previously achieved all-time high 95% of the time.
This should inform our mindset for investing. Unless you are a retiree, our goal as investors is to accumulate assets. To keep buying and investing. And most of the time, 95% of the time, you’re adding to your portfolio at prices lower than the all-time high in prices and value.
We can take this further. If you are a net saver, meaning you are spending less than you earn and taking that chunk of cash you save and investing it into assets for your future, you should prefer these days where the S&P 500 is not at an all-time high. Moreover, you might even prefer market corrections, even market crashes. This just means you’re accumulating assets at lower prices and will ride the wave higher as the market recovers with a larger asset base. Market corrections are gifts to net savers. Period.
Leadership during runs of the S&P 500 to all-time highs
It’s also worth noting something about market leadership. It’s often times not clear where the leadership will come from. In 2020 after the coronavirus crash of March 2020, the market rebounded quickly and began to approach new all-time highs. For much of this run, the stock market leadership came exclusively via mega-cap tech stocks such as Amazon, Apple, Facebook, Google, Microsoft, etc. There was concern that the market was hitting new highs but mostly due to outperformance of only a handful of very large stocks that have an outsized presence in the S&P 500 index.
Interestingly as we got later in the year, and the calendar flipped from 2020 to 2021, the S&P 500 kept hitting new highs, but these tech stocks became laggards. Not only were these tech stocks not leading the market higher, they were actually experiencing fairly significant drawdowns while the S&P 500 was hitting new all-time highs! Value stocks which had been beaten down for years were now leading the market higher.
There are a number of theories as to why this rotation from tech to value stocks occurred, but that’s not really important. What’s important is that we often don’t know where leadership is going to come from. How might this inform our investing? Well, it certainly supports the idea of passive investing in index funds. Since we don’t know which companies or sectors will lead the S&P 500 higher, we should just own the entire index. By owning the index, you won’t care which companies are leading the index higher, because you’ll own all of it.
Previous all-time highs in the S&P 500
The S&P 500 first crossed 500 on March 24, 1995.
The S&P 500 first crossed 1000 on February 2, 1998.
The S&P 500 first crossed 1500 on March 22, 2000.
The S&P 500 first crossed 2000 on August 26, 2014.
The S&P 500 first crossed 2500 on September 15, 2017.
The S&P 500 first crossed 3000 on July 12, 2019.
The S&P 500 first crossed 3500 on August 28, 2020.
What is the S&P 500?
The S&P 500 index (S&P refers to Standard & Poors) is a market-cap weighted index of the 500 largest publicly-traded companies in the United States. It is widely considered to be an excellent barometer of large cap US stocks, and like the Dow Jones Industrial Average, it is one of the most cited data points for “how the stock market is doing.” A casual investor can get a feel for how stocks are doing in general by understanding where the S&P 500 is currently priced and how that price has been moving in recent days.
S&P 500 index funds worth considering
Index funds are widely popular and there are many options for investors to “buy the S&P 500” via an index fund. From our article on the best index funds for 2021, here are some great S&P 500 index funds to consider.
S&P 500 Index Funds
| TICKER | NAME | EXPENSE RATIO | MINIMUM REQUIRED | TYPE |
|---|---|---|---|---|
| FXAIX | Fidelity 500 Index Fund | .015% | $0 | Mutual Fund |
| SWPPX | Schwab S&P 500 Index Fund | .02% | $0 | Mutual Fund |
| VFIAX | Vanguard 500 Index Fund | .04% | $3,000 | Mutual Fund |
| VOO | Vanguard S&P 500 ETF | .03% | A single share | ETF |
| SPY | SPDR S&P 500 ETF Trust | .09% | A single share | ETF |
| IVV | iShares Core S&P 500 ETF | .03% | A single share | ETF |