After a tumultuous year, the stock market has started looking up so far in 2023. The S&P 500 is up by more than 7% since the beginning of the year, and many investors are hoping that we're past the worst of this bear market.
If you've been holding off on investing until the market started to improve, now may be your chance to dive back in. But is it really safe to invest right now? There are a few things to know.
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How safe is the stock market right now?
The hard truth about the stock market is that it's unpredictable in the short term. Even the experts don't know how it will perform over the coming weeks and months.
Unfortunately, that means nobody can be certain that this bear market is over. Many economists are still predicting a recession at some point in 2023, which could take a toll on stock prices. But there are no guarantees, so it's anyone's guess right now as to how the market will fare this year.
However, that doesn't necessarily mean it's a bad time to invest. In fact, right now could be one of the smartest times to buy.
Investing during periods of volatility
For long-term investors, there are essentially no bad times to buy. According to data from Crestmont Research, it's hard not to make money in the stock market with a long-term strategy.
This research examines the rolling 20-year total returns of the S&P 500 from 1919 to 2021 and found that all of those years resulted in positive total returns. In other words, if you had invested in an S&P 500 tracking index at any point from 1900 onward and held it for 20 years, you would have made money.
The key here is to hold your investments, regardless of what the market is doing. If you buy when the market is on its way up but then panic-sell when prices fall, you'll end up locking in those losses. But by holding your stocks until the market rebounds, you won't lose anything.
When it's smart to invest (or not)
The question of whether it's safe to invest, then, depends largely on your timeline. If you're a long-term investor and are able to keep your money in the market for another decade or two, now could be a fantastic investing opportunity.
Stock prices, in general, are significantly lower than they were a year ago. Even major stocks like Amazon and Microsoft are down roughly 45% and 25%, respectively, from their peaks. Again, there's not necessarily a bad time to buy if you're investing for the long term, so now could be your chance to snag quality stocks at a steep discount.
That said, there are also good reasons to avoid investing now. If you can't leave your money in the market for at least several years, it might be wise to hold off. The market could potentially have further to fall, and if you invest now but pull your money out after prices drop, it could be costly.
Finally, the stocks you buy will have an enormous impact on your success (or lack thereof). When you own stocks from healthy, strong companies, you're far more likely to survive even the worst bear markets and recessions. But if your investments are shaky, you could lose more than you earn.
The market may be unpredictable at times, but that doesn't mean it's unsafe. By investing in the right places and keeping a long-term outlook, you can protect your savings while maximizing your earnings.
