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The Power of Index Investing: S&P 500 Hits New Record High

The S&P 500 closes at a new record high of 4839 on Friday.

It has been almost two years since the index made a new record high. The previous record high was set on 4 Jan 2022 so it has been a little more than two years since the record was refreshed.

During these two years, we saw the slump in the market during 2022 when the index had a negative return of almost 20%. Back then, I think I have highlighted that the market always recovers. While individual stocks might never recover, the same couldn't be said about the market. The market always recovers and makes new highs.

And here we are here again, witnessing the index making yet another new high after two years.

To be very exact, it is about 512 trading days.

In the market history, there are a few other occasions when the market fails to make a new record high within 500 trading days.

24th Sep 1958: 539 trading days

6th March 1972: 810 trading days

17th July 1980: 1897 trading days

30th May 2007: 1802 trading days

28th March 2013: 1375 trading days

The market has been brutal in the past with the period exceeding 1800 trading days on two occasions. 1800 trading days work out to be around 7 years! Could you imagine the index being underwater for 7 years? Most new investors couldn't. But I'm sure one day this is going to happen again, and there will be investors who decide to give up on index investing then. If that ever happens to you, I hope you remember that you ever read this article before.

A smart way of index investing during market downturns is to do regular DCA. If you have diligently DCAed your funds in the index during these two years, you will be having some good returns by now even though the index just barely surpasses the previous record high.

To put things into perspective, if you were to put $100 in the index monthly from January 2022 till now, you will probably be getting $17 dollars for every $100 you have put in. Of course, this doesn't take into the effects of inflation and transaction fees. But I believe this is still pretty good results for most investors.

Now that the market has set a new record high, I am sure some will be wondering what's going to happen next. Will the market start to drop? Or will the market continue to make new highs?

If history were to be of any good indication, chances are the market will continue to move up from here.

Based on research from the Ned Davis Research Group, the market has a median return of 13.4% one year after making a record high. In fact, there is only a particular instance when the market has a negative return after making a record high. That was during the Global Financial Crisis in 2007 and 2008.

So, I think history is definitely on the side of the investors here.

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