As stock prices continue to fall, should you keep investing or hold off?
The stock market has many investors feeling nervous about the future, as the S&P 500 recently dipped into bear market territory for the first time since 2020. In fact, nearly 40% of investors say they have pulled money out of the stock market as a result of the volatility, according to a recent survey from MagnifyMoney.
It’s an intimidating time to be investing, and you’re not alone if you’re unsure about whether or not to continue putting money in the stock market. Does that mean you should press pause until the market stabilizes? Or is it safe to continue investing? Here’s what you need to know.
How long will this volatility continue?
Stock market storms can be tough, in part because nobody knows how long they’ll last. Even the experts can’t accurately predict exactly how severe this downturn might be or how long it will be before stock prices recover.
That said, the stock market has a 100% success rate when it comes to rebounding from even the most severe crashes. It sometimes takes months or even years for stock prices to fully recover, but it’s extremely likely the market will bounce back from this downturn eventually.
Keeping a long-term outlook, then, can make it easier to invest during rough patches. By keeping your money in the market and continuing to invest (if you can afford it), you’ll reap the rewards when the market inevitably recovers.
In fact, downturns can actually be a fantastic opportunity to invest more. Stock prices are the lowest they’ve been in months, making it a smart time to load up on quality investments for a fraction of the price. Then, when prices eventually rebound, you could see substantial gains.
When it makes sense to avoid investing
Continuing to invest during periods of volatility can be a smart way to build wealth. However, there are some instances when you may be better off pressing pause for the time being.
If you don’t have an emergency fund, for example, it may be best to focus on building a solid stash of savings before you invest your spare cash.
Market slumps are one of the worst times to withdraw your money from the market. Prices are lower, which means you could end up selling your investments at a loss. If you face an unexpected expense or lose your job and you don’t have an emergency fund, you may have no choice but to tap your investments — and lock in those losses.
Similarly, if you’re living paycheck to paycheck, you might be better off waiting to invest. Investing is a long-term strategy, and stock prices could fall even more before they recover. If you invest everything but then need that money in a few weeks or months, you might be out of luck if your portfolio has dropped in value.
Investing in the stock market — even during periods of volatility — is one of the most effective ways to generate wealth. If you can afford to invest right now, you could grow your savings more than you might think.