Should you invest when markets are at all-time highs?

UK and American stocks markets are at all-time highs, having rebounded strongly following Trump’s “Liberation Day” tariff announcements.

The S&P 500 is at a record 6,305 points (although it is about 5% below its peak still in sterling terms) and the FTSE 100 recently crossed 9,000 points.

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The flagship UK and US indices are up 9% and 7% this year respectively (in local currency), and that’s before the positive impact of dividends.

But does this mean investors should be cautious and hold off investing more?

Not according to new research from fund manager Schroders. Head of strategic research Duncan Lamont ran the numbers and concluded that it was actually better to invest at all-time highs than to switch cash and reinvest when markets were lower.

Lamont showed that $100 invested in the US stock market in January 1926 would be worth $103,294 at the end of 2024 in inflation-adjusted terms, growth of 7.3% a year.

In contrast, a strategy which switched out of the market and into cash for the next month whenever the market hit an all-time high (and went back in again whenever it wasn’t at one) would be worth only $9,922.

“This is 90% lower! The return on this portfolio would have been 4.8% in inflation-adjusted terms. Over long time horizons, differences in returns can seriously add up,” he said.

His research also found that the US market is actually at an all-time high more often than you might think.

“Of the 1,187 months since January 1926, the market was at an all-time high in 363 of them, 31% of the time.

“And, on average, 12-month returns following an all-time high being hit have been better than at other times: 10.4% ahead of inflation compared with 8.8% when the market wasn’t at a high,” he said.

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The research from Schroders shows that while it’s normal to feel nervous about investing when the stock market is at an all-time high, history suggests that giving in to that feeling would have been very damaging for your wealth.

“There may be valid reasons for you to dislike stocks. But the market being at an all-time high should not be one of them,” Lamont concluded.

While the research focused on the US stock market, experts are optimistic that UK shares will keep rising this year.

Jonathan Unwin, UK head of portfolio management at Mirabaud Wealth Management, says that the UK market has acted as something of a safe haven amid global trade uncertainty in recent months, thanks in part to the UK quickly striking a trade deal with the US.He adds that foreign investors are gradually starting to return to UK markets, although domestic flows remain an area of weakness.

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The view is share by Alec Culter, manager of the Orbis Global Balanced fund, who says that momentum is starting to build in Europe and the UK, but starting to wane in the US.

“Historically, over the last five, six years, tonnes and tonnes of money flew out of the UK and Europe and the rest of the world into the US, so there’s this massive wall of water, money, that’s been ploughed into the US and pulled out of everywhere else. That’s starting to come back. As that gains momentum, we will benefit tremendously from our holdings in the UK, Europe and elsewhere,” Cutler said.