3 hours ago
31
The stock market has always been known for its volatility, but the past few months have been particularly rough for investors.
After falling by more than 8% between mid-July and early August, the S&P 500 (SNPINDEX: ^GSPC) made a quick comeback, only to drop 4% in just one week in early September and make yet another almost immediate rebound.
While the S&P 500 is still up by close to 20% for the year, the whiplash from all of these ups and downs can be exhausting as an investor. Other variables, such as a presidential election and a major interest rate cut from the Federal Reserve, could further affect stocks.
Given the market's volatility, is it actually safe to invest right now? Or should you hold off until the new year to see if stocks settle down? The answer is simpler than you might think.
When is the right time to invest in the stock market?
Despite the roller coaster of ups and downs, there's never necessarily a bad time to invest in stocks. The market can be shaky in the short term. But if you invest in the right places (i.e., the stocks of companies with solid business fundamentals that are healthy enough to pull through periods of volatility), your portfolio is almost guaranteed to bounce back and earn positive returns over decades.
The only way to lose money on a stock is to sell after the price has dropped below what you paid for it. As long as you hang onto the stock, even if the price drops, you haven't lost money until you sell and lock in those losses. If its price eventually rises again, you won't have lost any money.
Now, investors picking individual stocks will absolutely end up picking some pick losers. No one is right all the time. As investing legend Peter Lynch said, “In this business if you’re good, you’re right six times out of 10. You’re never going to be right nine times out of 10.” But the big winners in a diversified portfolio can more than make up for those, and if you're sticking with investing in an overall market-tracking fund, time is your friend.
A long-term outlook is key to surviving periods of volatility. Even if you invest at a seemingly terrible time right before the market faces a slump, your portfolio can still survive if you stay in the market and avoid selling.
For example, say you invested in an S&P 500 index fund in January 2022. Stocks were about to enter a yearlong bear market and wouldn't experience a new all-time high until early 2024, and your investment would have almost immediately lost value. Yet by today, you'd have earned total returns of close to 20%.
