Apr 6, 2023
Is Now a Good Time to Invest?
Investing always comes with risk, but people may feel more hesitant during certain economic conditions. Spring 2023 is understandably one of those times when uncertainty can make people, especially new investors, wonder if now is a good time to invest. The S&P 500 officially fell into a bear market in June of 2022, and it’s likely to stick around for a while. The stock market is volatile, interest and inflation rates are at historical highs, and there is the threat of an impending recession. As the world recovers from a devastating pandemic and war rages on in Ukraine, investing in the face of so much uncertainty may seem daunting. Newer investors may fear the unknown, while more seasoned investors may consider getting out of the market entirely when things seem rough. However, you don’t have to wait around for the next bull market to invest in your financial future.
So, is now a good time to invest? The answer is that it certainly can be, as long as you consider the following:
- Your financial goals are long-term. The market moves in cycles, and history has shown us that it’s very likely to recover in time. If your retirement savings goals are years into the future, you’re more likely to cash in on future market gains.
- You have idle cash at the end of the month. Idle cash is money that’s not needed for expenses or emergency savings, and isn’t earning interest that outpaces inflation. Those funds could be invested for potential returns in the future.
- You’ve built up a healthy emergency fund. Having a cash reserve on hand to keep you afloat during a financial emergency can prevent you from incurring further debt. If you have a comfortable cushion, you may feel confident putting money into the market.
In this article, we’ll cover:
- What’s going on in the stock market
- Reasons to invest in the here and now
- An investing strategy for any market
The current state of the market
Several factors are contributing to the state of the economy in 2023. The labor market is tight, pushing wages higher and, in turn, partially driving inflation. As interest rates increase, the likelihood of a recession rises too. S&P 500 companies have recently reported a 4.8% year-over-year decline in earnings, and it’s expected to drop even more this year. While defensive stocks, like utilities, consumer goods, and healthcare, continue to show stable earnings, experts predict the stock market overall will remain volatile throughout 2023.
Reasons why investing now is a good idea
Despite the relative volatility of the market, investing isn’t necessarily a bad idea. In fact, some experts suggest that in times like these, it can be beneficial to develop a long-term investment strategy, taking advantage of lower stock prices and holding out for returns in the future. As investment always comes with a certain amount of risk, it’s essential to do your homework before you dive in.
It’s about time in the market, not timing the market
Nobody can predict the market. While there are many indicators you can watch to identify trends, it’s impossible to foresee what will happen today, tomorrow, or next month. So don’t try to time the market by guessing which stocks will rise or fall in value. Market fluctuations are natural, and the only way to combat them is by staying in the market. That’s why time in the market, aka keeping your money invested long-term, is likely to be more successful than timing the market. For example, from October 2007 to March 2009, the S&P 500 fell more than 46%. But a bull market took over in 2009, allowing the S&P to climb more than 250% by 2019. Investors who stayed in the market eventually saw the returns they desired.
There’s potential for high investment returns in the long term
A long-term approach to investing can allow for compounding growth over time. And that can set you up for success with large financial goals like retirement savings. Generally, the longer term the investment, the higher the returns. You might consider investing in stocks and funds that have a history of performing well even in a volatile market. That said, investors interested in meeting short- to mid-term financial goals do have some lower-risk options. Bonds, Treasury bills, or Real Estate Investment Trusts, might be the right conservative shorter-term investment options with less volatility than stocks and funds. Banking products with higher interest rates, like CDs or high-yield savings accounts, might also be of interest if you want your money to grow in the short term.
3 Tips for investing regardless of the market
Invest regularly. Diversify your portfolio. Focus on the long term. These three tips can serve you well regardless of what’s happening with the market. It’s a simple investment strategy that will help you prioritize long-term financial health and cut out the noise of short-term stock market volatility.
1. Invest regularly
Leverage dollar cost averaging (DCA) to your advantage. Rather than trying to time the market with a lump sum investment, build wealth over the long term by investing a set amount of money on a regular basis. DCA can help reduce the risk of volatility and relieve some of the stress that comes along with investing. It also helps you diversify the average cost of shares, so you can continue to invest regardless of stock prices. Many beginning investors find it helpful to budget a certain amount of money to put into their brokerage account each month
2. Diversify your portfolio
Diversifying is one of the most critical things you can do to safeguard your portfolio from market downturns or financial crises. Diversification means spreading your investment portfolio across different types of assets to reduce overall risk. Those different investments may include stocks, bonds, ETFs, mutual funds, real estate, or even global assets that go beyond the US stock market. Within each of those asset classes, you can find even more ways to diversify; for example, if you invest in stocks, you may wish to spread your money among several different sectors. Remember to ensure that your diversified portfolio balances risk versus reward according to your risk tolerance, time horizon, and financial goals.
3. Invest for the long term
Uncertain markets call for a long-term investor’s mindset. Gains will take time, so focus on holding stocks for the long term. A few ways you can keep your eye on the future instead of stressing about the current ups and downs include:
- Focus on retirement savings and other far-off financial goals that are 10 or more years in the future
- Create a strategy based on a diversified portfolio and stick to it; changing your plans with every shift in the market adds stress without necessarily reducing risk
- Don’t fixate on economic news if it causes you anxiety. Stay informed about your investments, but don’t allow every market dip to induce panic
- Set up automated investing so that you can stick to your investing plans and manage your portfolio passively
To invest or not to invest? Try the Stash Way
Even if you’re just learning how to invest in stocks, funds, and other financial products, the ups and downs of today’s stock market don’t have to be a deterrent. All you need is awareness of your risk tolerance and a thoughtful investment strategy like the Stash Way: invest regularly, diversify your portfolio, and invest for the long term. Market fluctuations are inevitable, but Stash can help you navigate your way toward future financial success.
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