Every month, thousands of people search online with a burning question on their minds ‘Is it still OK to invest in the stock market?’ The answer to it depends on your specific financial goals than on the condition of the stock market on a specific day.
If you have a considerable amount of savings that can benefit you by investing, jump into the stock market. Long-term investing in the stock market, in this case, will prove valuable. The main reason why investors are wary of the market is because of its extreme volatility. This can be seen in the period of growth from 2009 to 2020, followed by a steep sell-off during COVID-19 and the stocks hitting record highs again by August 2020.
Remember that some or other events will always impact the stock market. But does that really mean that you should fully abstain from it?
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The Correct Time for Investing in the Stock Market?
The stock market is not very unsafe, even during downturns. Although the stock prices keep fluctuating, it is highly likely that the market will perform well in the long term. Investing is also essentially a long-term strategy. So, there cannot be a bad time to invest.
For example, you can hold your investment during a period of downturn and see them recovering substantially when the market restores. This is why investing becomes easier and feels appropriate every time. Having long-term investing goals prevents you from being affected by short-term drops.
The compounding of gains over a period is what makes you meet your long-term financial goals. But if you are more inclined towards bonds or fixed-income investments that rise less quickly than stocks, you may need to create short-term goals.
What Is the Situation of the Stock Market today?
Today, there are various reasons to start investing. Previously, every time the S&P fell by more than 18 percent, it rebounded in the succeeding year. Today, valuations are more attractive compared to before. You have some top-tier stocks, such as that Amazon, which is near to 50% below its prior high. This shows robust growth prospects in the future.
Moreover, the latest data from the U.S Bureau of Labour Statistics points to the consumer price index falling the most on a monthly basis in December than it has ever been since 2020. This directly points towards reducing inflation rates, which is the biggest cause of S&P 500s rise.
Having said that, it doesn’t mean that everything is favorable. Recently, JPMorgan Chase warned about the occurrence of a recession in 2023. Further, the latest Wallstreet Journal survey also reveals that economists across significant financial institutions say that a recession is looming.
Although buying stocks during a recession can lead to losses, there’s still a silver lining. These periods don’t last long, and the stocks begin rising even before the recession fully ends.
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Why Make Investing Moves When the Markets Are Struggling?
You might ask, why is it still OK to invest in the stock market when it is struggling? Doing so will not prove disastrous. In fact, it will only prove good for you over time. Here is why it is okay to invest in the stock market even during downturns.
1. You are not actually losing any money.
The shrinking balance in your investment account may make you feel as if your hard-earned money is going away. In contrast, this is happening only on paper. If you keep staying invested, this loss will actually prove beneficial to you.
2. New buying opportunities open up.
Market downturns may dampen the spirits of investors. But a widely overlooked fact is that during this time, financial assets go on sale. As a result, you can explore opportunities to purchase new investments at discount prices. It, in turn, paves the way for those investments to grow and become more valuable in the future.
3. You may never come back if you don’t invest during the downturn
As a matter of fact is that no one can predict the situation of stock markets. You don’t know when they will recover. But if you quit contributing to your investment account, you will miss the opportunity for a comeback. Many people don’t realize that the most profitable days of stock market happen around the worst days.
Did you know that between January 1, 2002, and December 31, 2021, the best days of S&P 500’s happened within a span of two weeks of its ten worst days?
4. Benefit from a diversified portfolio
Diversification refers to keeping various investments from different asset classes, such as technology, manufacturing, stocks, and bonds. With such a portfolio, you can spread out the risk.
Another thing to remember is to invest in small, medium, and large companies. Investing in both international and domestic stocks is a great move. Diversification saves you from incurring losses because if one area suffers, you may do well or be steady in another area.
When Should You Stop Investing?
You should stop contributing to investments if you are facing financial problems. Ensure that you have a positive cash flow stream and an emergency fund in a secure bank account. The fund should cover at least six months of your expenses when you find yourself with no income source.
Only after ensuring a positive cash flow stream should you invest the leftover money.
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Final Take on Investing in Stock Market Today
So, is it still OK to invest in the stock market? Well, long-term investing is always the right choice. You can start with small amounts and invest in diversified ETFs and mutual funds. Another question you can ask yourself is whether you will need the money you are investing in the next five to seven years.
Is it still OK to invest in the stock market? If yes, then it’s best to find less volatile investment options than stocks. Investing is almost always safe when you have a good time horizon and a diversified portfolio.