Loose monetary policy, supply chain chaos, and geopolitical conflict have unleashed inflation the likes of which many consumers have never seen. In turn, macroeconomic uncertainty has sent the stock market into a downward spiral. The S&P 500 fell nearly 21% in the first six months of 2022, leaving the benchmark index in bear market territory. For context, the S&P 500 hasn't delivered such dismal results in the first half of the year since 1970.

For months the Federal Reserve insisted that inflation was transitory, but the central bank has since changed its tune. The Fed has now raised interest rates three times this year, and the latest rate hike was its most aggressive since 1994. Adding all of those variables together, many economists see a recession on the horizon.

Is now the right time to buy stocks?

A crash course in bear markets

Excluding the current situation, the S&P 500 has weathered six bear markets over the last five decades. Investors can learn a few important lessons by examining those downturns.

The first lesson is that each bear market differs dramatically in terms of duration and severity. It took more than one year for the S&P 500 to reach bottom during the Great Recession, but it took just over one month for the market to bottom out at the onset of the COVID-19 pandemic.

Start Date

Time to Bottom

Decline

1973

630 days

48.2%

1980

622 days

27.1%

1987

101 days

33.5%

2000

929 days

49.1%

2007

517 days

56.8%

2020

33 days

33.9%

Data source: Yardeni Research.

The second lesson requires investors to read between the lines. Losses sustained during a bear market are eventually washed away by the next bull market. After every downturn, the S&P 500 has recovered and gone on to hit new highs. In fact, over the last five decades, the average bear market saw the S&P 500 fall 41%, but the average bull market saw the index rise 259%. 

Now is a great time to invest

Unfortunately, it is impossible to accurately predict market cycles. No one actually knows when the current bear market will end. That means trying to time the market is essentially gambling. If you take that approach, there is a good chance you will eventually get burned, and the impact could be catastrophic for your portfolio.

Consider this cautionary anecdote: The S&P 500 climbed 517% between January 2002 and December 2021. But if the 10 best days are excluded -- just 10 days in two decades -- the total return would have been just 183%. And guess what? All of the 10 best days occurred during bear markets, and six of them actually took place before the bear market had reached a bottom.

From that perspective, now is a great time to invest in the stock market.

Where to invest right now

How you should invest your money depends on your risk tolerance and your time horizon. If you have several decades before retirement and you can handle volatility, plenty of growth stocks are currently trading at significant discounts. Of course, you should never buy a stock just because it has fallen sharply. Instead, aim to invest in industry leaders with a durable competitive advantage and a large market opportunity. Cybersecurity specialist CrowdStrike (CRWD 0.19%) is a great example, as is e-commerce software vendor Shopify (SHOP 1.61%).

Alternatively, an S&P 500 index fund like the Vanguard S&P 500 ETF (VOO 0.04%) is a good option for risk-averse investors. The benefit is instant diversification across 500 of the largest U.S. companies, meaning your financial well-being is not tied to a small group of stocks. It's worth mentioning that Warren Buffett is a big advocate of that strategy.

Regardless of the path you choose, remember that a long-term mindset is a critical part of the equation, and that bear markets have historically been a great time to invest.