It's often intimidating to invest in the stock market even in good times. But when the market is volatile, it can be even more unnerving.
Over the past couple of weeks, the market has been especially shaky. After officially entering correction territory earlier this year, the S&P 500 has rebounded roughly 9% in the three weeks -- nearly recovering its losses.
However, with surging inflation, the continued supply chain issues, and the ongoing conflict in Ukraine, all of that uncertainty could potentially result in more market volatility. If you're considering investing, is now really the time?
Should you invest when the market is volatile?
When the market is rocky, it may seem wise to avoid investing until it stabilizes. But that could actually be a risky move.
Day to day, the market is never truly stable. It constantly experiences small fluctuations, and there are countless factors influencing stock prices at any given moment. Even in strong economic times, there are periods when prices are down, sometimes for days or even weeks at a time.
In hindsight, it's easy to see upward or downward trends in the market and wonder how much you could have earned if you'd invested at just the right time. In the moment, though, it's nearly impossible to know whether stock prices are going to surge or whether we could be headed toward a downturn.
If you're waiting for just the right moment to invest, then, you could end up waiting forever. While that can be discouraging, the good news is that it doesn't necessarily matter when you invest, as long as you're consistent.
How the right strategy can maximize your earnings
Because the market is unpredictable, timing your investments perfectly is next to impossible. However, by investing consistently regardless of what the market is doing, you can minimize the effects of volatility.
This strategy is called dollar-cost averaging, and it involves investing a set amount of money on a regular basis -- whether it's every week, every month, or even every quarter.
Sometimes, you'll end up buying when the market is thriving and stock prices are at their highest. Other times, you'll invest during a slump when prices are at rock bottom. Over the long run, those highs and lows will average out, and it won't necessarily matter how the market was performing when you invested.
Also, keep in mind that investing is a long-term strategy. It can be unnerving to invest when stock prices are falling, but even the worst downturns are only temporary. If the market does take a turn for the worse, your best bet is usually to stay invested and simply ride out the storm. Eventually, prices will rebound.
Finally, choosing the right investments can make your portfolio more likely to survive periods of volatility. Strong companies have a better chance of pulling through tough economic times, and by filling your portfolio with solid long-term stocks, you can rest easier knowing your investments will likely recover if the market does dip.
The stock market has been a rollercoaster over the last few months, but that doesn't mean you shouldn't invest. By investing consistently and maintaining a long-term outlook, you have a better chance of building wealth over time -- regardless of how the market performs.