The S&P 500 Is Around Its All-Time High. Is It Too Late to Invest in the Index?

It was only a few months ago that investors were worried a bear market and a wide-scale sell-off

In doing so, it has hit a new all-time high

That is great news, but it also might have you thinking whether this is still a good time to invest in the stock market

There is, after all, still the threat of tariffs and trade wars out there

Some analysts also worry a possible recession

Should you wait for a pullback

Image source: Getty Images

Valuations are getting dangerously high The red-hot stock market has done well, perhaps too well

One way to gauge just how expensive the market is is by looking at the Shiller price-to-earnings (P/E) ratio, which looks at a 10-year period and adjusts for inflation

Currently, the Shiller P/E multiple is just under 38

This doesn't mean that another crash is inevitable, but it highlights just how expensive the market has become

With high valuations come high expectations, and the danger is that declining economic conditions could set investors up for significant losses

Although stocks generally do rise in value over the long term, that doesn't mean there aren't bad years along the way

Another reason for caution beyond just high valuations is that the full effect of tariffs may not be factored into stocks just yet

There has been a pause on recical tariffs, and many es loaded up on inventory in advance to avoid the effect of higher prices

If tariffs have a meaningful effect on fits this year, that could significantly test the stock market

The risk of a correction does look to be rising

The are behaving as if economic conditions are ideal and everything is perfect, when in fact, there is plenty of risk and uncertainty ahead

Speculation is rampant, with new stock issues soaring and Bitcoin hitting record levels

However, that doesn't mean you need to get out of the stock market

But if you are near retirement (less than five years away), or you think you might need to pull money out of your investments in the short term, now can be a good time to consider rebalancing your portfolio by putting some money into bonds or more value-focused funds, such as the Vanguard Value Index Fund ETF

Moves this can help you reduce some of your overall risk

That alone isn't a reason to worry

That's entirely normal

And valuations can remain elevated for a long time

Predicting a market crash can be extremely difficult

While it would be great to know that now is the time to get out of stocks, and that you'll wait for a sell-off before buying back in, that's much easier said than done

The smartest investors in the world don't suggest trying to time the market, for good reason

By doing so, you'll miss out on gains, and there's never a guarantee of when a crash might happen

But if you need to reduce volatility and risk because you may need to access your money in the near term, it can be a good idea to potentially pivot into safer investment options right now

David Jagielski has no position in any of the stocks mentioned

The Motley Fool has positions in and recommends Bitcoin and Vanguard Index Funds-Vanguard Value ETF

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