After a discouraging year, the stock market is looking a little more promising so far in 2023. The S&P 500 is up by around 7% since the beginning of the year, and the Nasdaq has soared by roughly 13% in that time. This rally is giving many investors hope that we've survived the worst of this bear market.
But if history shows us anything, it's that the market can be unpredictable. And with many economists predicting a recession in 2023, some investors are worried that stocks still have further to fall.
So what's going on with the market? Has this bear market already bottomed out? There's a better question you should be asking yourself.
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The risks of timing the market
In an ideal world, we'd know exactly when the market is at rock bottom, and investors could load up on stocks at the lowest prices immediately before the rebound. In reality, though, it's impossible to know when the market has reached its bottom until we're far beyond that point. In other words, if you wait to invest until you know for certain the market is past its bottom, you'll have already missed out on the early stages of the rebound.
During the Great Recession, for example, the S&P 500 officially bottomed out in March 2009. But it still experienced multiple substantial dips on its way back up, which would have made it difficult to tell in the moment that the worst was already over.
If you had invested in an S&P 500-tracking fund in February 2009, your investments would have immediately lost value. But by the end of the year, you would have seen returns of around 35%.
However, if you had waited to invest until, say, August (when the market was already on a steady upward trajectory), you would have only earned returns of around 13% by the end of the year).
Rather than asking yourself whether the market has bottomed out, then, it may be better to ask whether the fear of short-term volatility is worth missing out on the potentially lucrative recovery period.
Is it worth investing now?
The answer to this question will depend on your personal investing goals. If you're saving for retirement and still have decades left to prepare, downturns like this one may not make a difference in your strategy.
Although they're not easy to stomach, bear markets are normal and only temporary. Even the longest bear markets rarely last more than a year or two. In fact, the dot-com bubble burst holds the record for the longest bear market, and it lasted roughly 2.5 years.
That feels like ages in the moment, but if you plan to continue investing for many more years, you have plenty of time for your money to recover. Even if you invest now and stock prices fall again, the market will very likely rebound before you need those savings.
If you're already retired or expect to need your savings within the next year or two, you may want to be a bit more cautious about where you invest. In those cases, you might opt for dividend-paying stocks, bonds, or other more conservative investments that are less susceptible to market volatility or provide an alternative source of income.
Managing bear market anxiety
Even if this bear market hasn't bottomed out yet, investing now is one of the best ways to ensure you're taking advantage of the recovery period -- whenever it may happen. That's often easier said than done, though. We haven't experienced a downturn this long or severe since 2008, and for many investors, this is their first taste of economic uncertainty.
If you're feeling anxious about the future, you're not alone. One of the best things you can do is keep a long-term outlook. No downturn will last forever, and historically, the average bull market lasts longer than the average bear market.
Stock market downturns can be tough to stomach, but they're a necessary part of the economic cycle. Rather than trying to time the market and only invest when prices are at the bottom, it may be wise to invest consistently throughout the slumps. Whenever the next bull market begins, you'll be ready for it.
