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of S&P500 (^GSPC 1.07%) After starting to rise from the lows, it entered a bull market in October 2022. But now that we’re at a new all-time high, it’s official no matter how you look at it: we’re in bull market territory.
Although this is an exciting moment for the market, it is normal to feel conflicted. With stock prices rising, now might be the best time to invest to take advantage of the gains. But some investors are already concerned that they may have missed out on the best buying opportunity.
The good news is there are still plenty of good reasons to invest now. But he also has one sensible reason to postpone.
Why it pays to invest now
1. Timing the market is nearly impossible.
Until the perfect moment to buy, especially when it’s so easy to look back at market performance and wonder how much profit you would have made if you had invested right away when the price bottomed. You may want to wait.
However, timing the market effectively is nearly impossible and is often more about luck than skill. No one knows how the market will perform in the coming weeks or months. So if you wait for the perfect time to buy, you’ll probably wait forever.
A safer and more effective strategy than trying to time the market is dollar-cost averaging. With this approach, you invest a fixed amount of money on a regular basis, weekly, monthly, or quarterly.
In some cases, you may end up buying when the price reaches its peak. But in other cases, you’ll be investing at a deep discount. Over time, these highs and lows should average out. This strategy takes the guesswork out of when to buy and helps you avoid getting caught up in short-term fluctuations in the market.
2. Time is your most precious resource
Share prices have skyrocketed over the past year, but that doesn’t mean you can’t make some big profits. If the market continues to rise, you can take advantage of the profits by investing now. And the longer you wait, the more potential revenue you could miss out on.
For example, let’s say you invested in an S&P 500 index fund in June 2009. That was just months after the index bottomed out during the Great Recession. If he had continued investing, he would have made more than 422% return by today.
^SPX data by YCharts
On the other hand, let’s say you wait two years before investing. By June 2011, the market was already in recovery mode and you might have thought it was a safer time to buy. However, the total return to date is only about 275%.
^SPX data by YCharts
While there is no guarantee that stock prices will continue to rise, time is an invaluable asset when it comes to building wealth in the markets. Regardless of what the future holds in the coming weeks or months, investing now will maximize your long-term return potential.
3. The market has an impeccable track record.
Some investors worry that now that the market has hit new highs, there is nowhere else to go but down. There is still plenty of room for growth in the coming years, but if a recession is on the horizon, the good news is that the market has an outstanding track record of recovering from even the worst downturns. .
Historically, the S&P 500 has recovered from every decline it has faced. Although past performance does not predict future returns, it is very likely that the market will have positive returns over the long term, regardless of short-term volatility.
In the past 20 years alone, the market has seen everything from the bursting of the dot-com bubble to the Great Recession to the COVID-19 crash to the recent downturn. Still, the S&P 500 is up about 233% since 2000.
^SPX data by YCharts
It’s natural to worry about volatility. But the best way to create wealth in the stock market is to invest consistently and keep a long-term outlook. No matter what happens in the coming weeks and months, the market still has plenty of long-term potential.
Reasons to avoid the market now
1. You don’t have emergency savings.
Now may be a great time to invest, but before jumping into the stock market, it’s wise to have enough savings to cover at least six months of general living expenses.
The market can be volatile in the short term (even during good economic times), so it’s wise to avoid withdrawing your money too soon after making a purchase. If you suddenly need to withdraw your cash because the stock price declines after you invest, you may end up selling your investment for less than you paid for it, potentially locking in a loss.
But having a good emergency fund makes it easier to keep your investments untouched while they continue to grow. Even if the market takes a turn for the worse, you can weather the storm and wait for prices to recover.
While the new bull market is exciting, it’s still important to keep a long-term outlook when investing. By investing wisely and staying focused on the future, you can potentially reap significant long-term returns.
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