The S&P 500 is sitting near a record high, and that has investors asking a familiar question: Is the market getting too expensive to buy?

S&P 500 Record High: The Numbers Behind the 13% Run

The S&P 500 recently hit 7,758 points, and it’s up by about 13% this year so far. That’s a pretty impressive run, but investors aren’t exactly feeling comfortable.

Inflation is still a concern. Oil prices are moving higher. The latest jobs data showed employers unexpectedly cutting jobs. And — as of this recording — investors were watching the recent inflation report for clues about what the Fed does next with interest rates.

So, you’ve got a market at record highs, with a whole lot of uncertainty underneath the surface. The question is: should you be pulling back?

S&P 500 Historical Performance After Record Highs: J.P. Morgan Research

Let’s start with the history.

According to research from J.P. Morgan, the S&P 500 has actually performed pretty well after reaching record highs. From 1988 through 2024, the average 1-year return after the S&P 500 hit a new high was about 13%. That’s compared to about 12% after an investment made on any random day.

And over 5 years, the difference was even more interesting. The average cumulative return after buying at a record high was about 81%, compared to about 75% on any random day. Keep in mind, that’s historical data — past performance is not indicative of future results.

Now, that data isn’t a forecast, and it doesn’t mean the S&P 500 is going to return 13% over the next year. But it does challenge one very common assumption: that when the market hits a record high, it must be getting close to a ceiling.

History doesn’t really support that idea.

Warren Buffett Investment Philosophy: Valuation Over Market Timing

And this is where Warren Buffett’s philosophy comes in. Buffett has never made the broader market’s latest record high the centerpiece of his investment strategy. His focus has been on what you’re actually buying and what you’re paying for it.

That’s an important distinction because the S&P 500 can be at a record high while individual companies and sectors have very different valuations.

S&P 500 Valuation Today: 28x Earnings vs. 5-Year Average

But that doesn’t mean investors should ignore today’s risks. The S&P 500 is currently trading at roughly 28x earnings, which is above its 5-year average of around 24x. So, yes, the market isn’t exactly attractively priced based on that measure. And that’s happening at a time when investors are already watching inflation, interest rates, corporate earnings, and geopolitical risks.

In other words, there are plenty of reasons to be cautious.

But there’s a big difference between saying, “The market looks expensive,” and saying, “The market is about to fall.” Those are two completely different statements. And nobody knows the exact timing of the second one.

Why Investment Time Horizon Matters More Than Market Timing

That’s why understanding your time horizon matters so much.

If you’re going to need your investment money in the next couple of years, a major market decline could be a serious problem. But if you’re investing for retirement 10, 20, or 30 years from now, a short-term pullback is a very different situation.

In fact, LPL Research points to some pretty striking long-term history. The S&P 500 has produced a positive return over 10-year periods about 94% of the time. And over 20-year periods, the index has historically delivered positive returns. Again, that’s past performance, not a guarantee of what happens next.

Dot-Com Crash Case Study: $10,000 Invested at the March 2000 Peak

Let’s use an example from the dot-com era.

Imagine investing $10,000 at the market peak in March of 2000. The timing couldn’t have been much worse. The market plunged afterward.

But according to LPL Research, an investor who stayed invested and reinvested dividends would eventually have seen that hypothetical $10,000 increase to more than $80,000. Now, that it hypothetical and doesn’t account for fees or taxes.

But that’s the part of investing that headlines don’t always capture.

Record Highs Are News, Not a Forecast: Questions to Ask Before You React

You don’t need to believe the market is undervalued to understand why abandoning a long-term plan because of one headline could be risky. And you don’t need to believe the market is going to keep going up, either.

The market can absolutely fall. It can fall sharply. The challenge is knowing when to get out, and then knowing when to get back in. So when you see the headline, “S&P 500 hits another record,” don’t automatically treat that as a buy signal. But don’t automatically treat it as a sell signal, either.

Instead, ask a few better questions. What am I invested in? What am I paying for it? How much volatility can I realistically handle? And, most importantly, when am I going to need this money?

Because a record high is news. It’s not a forecast.

And if your long-term investment plan still fits your goals, your time horizon, and your risk tolerance, today’s headline alone may not be a reason to abandon it.

Securities are offered through LPL Financial, Member FINRA/SIPC. GenWealth Financial Advisors is an other business name of Independent Advisor Alliance, LLC. All investment advice is offered through Independent Advisor Alliance, LLC, a registered investment adviser. Independent Advisor Alliance, LLC is a separate entity from LPL Financial.