of S&P500 (SNPINDEX: ^GSPC) It rose 24.2% in 2023 as signs of economic recovery gave investors more confidence in a soft landing — a scenario in which the Federal Reserve successfully controls inflation without causing a recession.
That momentum spilled over into 2024 as well. The S&P 500 rose an additional 10.2% in his three months through March, marking his second-best first-quarter performance in the past decade. What's even more surprising is that the index has already hit an all-time high 22 times this year. goldman sachsand it sits within ejecting distance of the other.
Here are two of the worst mistakes investors can make right now.
Mistake 1: Avoiding the stock market or selling stocks without a good reason
Isaac Newton once said, “What goes up must come down.” Although this axiomatic argument is irrefutable in terms of gravity, investors should never apply its logic to the financial world. The stock market is not bound to fall after rising.
In fact, historically, investing in the S&P 500 at its peak has been a wise decision.strategist of JP Morgan Chase Recently, I wrote, “If you invested in the S&P 500 at all-time highs over the past 50 years (back to 1970), there was a 70% chance that your investment would have been higher one year later.On average, your return would have been 9.4% — The average return if you invest at any time is 9%.”
With that in mind, the worst mistake investors can make right now is simply avoiding the stock market or selling stocks out of fear of a possible correction. In the words of famous investor Peter Lynch, “More money is lost by investors preparing for or trying to anticipate a correction than by the correction itself.” There are many.”
To be clear, I'm not saying that the stock market will definitely go up in the coming months. The point I'm making is that market peaks are nothing to be afraid of. More importantly, patient investors have historically performed very well. The S&P 500 has returned 572% over the past 20 years, compounding 10% annually, despite three bear markets and seven corrections.
Mistake #2: Falling prey to the fear of missing out
The second mistake investors must avoid is just as dangerous as the first. It's about falling prey to fear of missing out (FOMO). Even the most level-headed investor can be tempted to ignore fundamentals and chase momentum when the stock market is surging, but buying stocks without regard to price can ultimately backfire. Masu.
The frenzy surrounding artificial intelligence (AI) is a case in point. I believe that AI will change the world in the coming decades. Perhaps more so than any other technology in human history. In fact, people in the future will take self-driving cars and autonomous robots for granted, just as you and I take cell phones and the internet for granted. But that doesn't mean all AI stocks are worth investing in.
More importantly, even the best AI stocks aren't worth buying at any price. Investors should always consider valuations when deploying their funds in the market. Warren Buffett commented on this topic in a 1982 letter. berkshire hathaway Shareholders. “Purchasing too high a price for a blue-chip company's stock can cancel out the impact of a subsequent decade of successful business development,” he writes.
With this in mind, the S&P 500 index currently trades at 20.5 times forward P/E, compared to an average of 17.7 times forward P/E over the past 10 years, according to FactSet Research. It's quite a premium. This means many stocks are trading at historically high valuations, so investors should be especially careful in the current market environment. In the words of Buffett, “Be afraid when others are greedy.”
The conclusion is: He believes the two worst mistakes investors can make today are (1) avoiding the stock market or selling stocks without a good reason, and (2) risking missing out on opportunities. It's about falling prey to fear. The S&P 500 has historically performed very well since record highs, but even the best stocks aren't worth buying at any price. Investors should always consider valuation when purchasing stocks and should never buy stocks that they are not prepared to hold during market downturns.
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JPMorgan Chase is an advertising partner of The Motley Fool's Ascent. Trevor Jennewine has no position in any stocks mentioned. The Motley Fool has positions in and recommends Berkshire Hathaway, Goldman Sachs Group, and JPMorgan Chase. The Motley Fool has a disclosure policy.
The S&P 500 is nearing all-time highs: The two worst mistakes investors can make right now was originally published by The Motley Fool
