Stocks Are Near All-Time Highs: Is Now a Bad Time to Invest?

The market has been on a roll lately, with the S&P 500 (SNPINDEX: ^GSPC) setting new highs throughout May. If you think you missed your opportunity when the market bottomed in late March, don't fret. The market hitting new all-time highs is not particularly rare and should not change your investment strategy. And if you are thinking of waiting for the next dip, I'd think again.

According to a J.P. Morgan study, since 1950, the S&P 500 has hit an all-time high on about 7% of trading days. Meanwhile, nearly a third of the time, the market never trades lower after hitting those highs. This means there is a great chance that investing today will be a profitable endeavor, and of course, the longer your holding period, the better the odds.

There is also a big opportunity cost from waiting for a stock market dip that may never come. In addition, even if you were able to correctly predict the next market correction, you'd have to correctly predict the right time to get back in. The market's best days are often after big sell-offs, and if you hesitate to get in, you'll be leaving a lot of gains on the table.

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Dollar-cost averaging into ETFs

As such, the best market strategy remains dollar-cost averaging, and the best vehicle for this strategy is index-based exchange-traded funds (ETFs). Why ETFs are better suited for dollar-cost averaging than individual stocks is that, quite frankly, most individual stocks underperform the market.

A separate J.P. Morgan study found that between 1990 and 2020, 40% of stocks experienced a decline of 70% or more from which they never fully recovered, while two-thirds of stocks underperformed. However, a few mega-winners typically propelled the market higher.

Given that dynamic, centering your portfolio on one or two core ETFs and consistently dollar-cost averaging into them over the long term is one of the smartest moves an investor can make. Two great options for using this strategy are the Vanguard S&P 500 ETF (NYSEMKT: VOO) and the Invesco QQQ Trust (NASDAQ: QQQ).

The Vanguard S&P 500 ETF tracks the S&P 500 and provides investors with an instant, diversified portfolio of the 500 largest publicly traded U.S. companies. The ETF has a strong track record, generating an average annual return of 15.2% over the past decade, as of the end of April. Only about 14% of actively managed funds have outperformed the S&P 500 over the past decade, making it a great investment option.

For investors looking for more growth and tech exposure, the Invesco QQQ Trust is a great option. While more concentrated, it has consistently outperformed the S&P over the past decade, generating an average annual return of 21.1% over that stretch.

JPMorgan Chase is an advertising partner of Motley Fool Money. Geoffrey Seiler has positions in Invesco QQQ Trust and Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends JPMorgan Chase and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.