This year has been a wild ride for the stock market, and that volatility can make it an intimidating time to invest. However, in some cases, right now is a smart buying opportunity. Eventually, the market will recover. By investing when prices are at rock bottom, you could see lucrative returns when stocks rebound.
Just how safe is that strategy, though? Should you really be investing right now? Or should you hold off for a while? It depends on a few factors.
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How to (safely) invest during a market downturn
It's true that investing when the market is in a slump can be a financially smart strategy. Prices are lower than they've been in a long time, which means now's a good time to load up on high-quality stocks for a fraction of the price.
Also, when the market inevitably recovers, you could see substantial gains. As the saying goes, investing is about "buying low and selling high." Right now is one of your best chances to "buy low."
That said, with the wrong strategy, it's possible to lose more than you gain. Fortunately, there are a few secrets to keeping your money safe during periods of volatility.
1. Assess your financial situation
It's wise to only invest money you won't need for the foreseeable future -- ideally several years, if not decades. The market can be unpredictable in the short term, and even the experts don't know exactly how it will perform.
If you realize you need that money back and stock prices have fallen since you first invested, you may be forced to sell your investments for less than you paid for them -- locking in your losses.
For that reason, if you don't have any emergency savings or if money is tight, it might be best to hold off on investing for now.
2. Keep a long-term outlook
While the market may be unpredictable in the short term, it's extremely likely to see positive average long-term returns.
Over the last two decades alone, the S&P 500 has experienced the dot-com meltdown, the Great Recession, the COVID-19 crash in 2020, the current bear market, and countless smaller corrections in between.
Despite everything, though, the S&P 500 is still up by more than 170% since 2000. Although nobody knows exactly what the coming weeks or months will look like for the market, if you hold your investments for the long haul, there's a very good chance you'll make money.
3. Invest in the right places
The stocks you choose can make or break your portfolio. Not all companies will be able to recover from periods of market volatility, but strong organizations with solid underlying business fundamentals have the best chances.
The more of these stocks you have in your portfolio, the more likely it is that your investments will rebound from this slump.
Should you invest right now?
While it may not seem like it, right now is a fantastic investing opportunity. Not only is it a more affordable time to buy, but you can also set yourself up for significant gains when the market eventually recovers.
Nobody knows for certain when the next bull market will arrive, but it is coming. If your financial situation allows it, now is the time to load up on stocks. By choosing the right investments and keeping a long-term outlook, you can take advantage of the inevitable upswing.
