The past year has been tough for investors, and many may be feeling conflicted about the stock market.
On the one hand, stock prices have been surging recently -- with the S&P 500 and Nasdaq up by more than 8% and 16%, respectively, since the beginning of the year. However, it's also looking more likely that a recession is coming, which has many investors feeling understandably nervous.
The good news, though, is that a new bull market is also on the horizon. And while it may be nerve-wracking to invest right now, if you wait too long, it could be a costly mistake.
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When will the next bull market begin?
When the future is uncertain, it can be tempting to hold off on investing (or even pull your money out of the market) until the economy regains its strength. But by doing so, you could miss out on the upcoming bull market.
The stock market is often described as being forward-looking, which means it usually experiences fluctuations ahead of the economy.
Case in point: Every bear market since 1948 has started before the onset of a recession, according to data from Ned Davis Research. Even recently, all three major market indexes have already dipped into bear market territory, but we're not officially in a recession yet.
However, the same concept also works in reverse: The market almost always bottoms out before the end of a recession. In fact, in almost every recession in the last 50 years, the S&P 500 began its rebound before the economy reached its lowest point, according to research from JPMorgan Chase.
What does this mean for you?
Because stock prices often begin their recovery while the economy is still in the thick of a recession, it can be incredibly difficult to time the market.
If you're waiting to invest until the economy starts to show signs of improvement, you risk missing out on the early stages of the next bull market. And in some cases, those early stages can be lucrative.
For example, say you had invested in an S&P 500 index fund in February 2009, amid the Great Recession. The market bottomed out in March of that year, so at the time, that may have seemed like a terrible time to invest. But over the following year alone, you'd still have earned returns of nearly 32%.
On the other hand, say you had waited until June to invest -- after the recession had officially ended. In that case, you'd only have earned returns of around 15% by February 2010.
In short, nobody knows for certain how long this potential recession may last, or when a new bull market will begin. And we likely won't even know we're in a bull market until stock prices have increased substantially. If you wait too long to buy, you may miss out.
The key to making money in a bull market
Now may seem like a risky time to buy, but it doesn't have to be. As long as you're investing in the right places, you can give your portfolio a much better chance of thriving during the next bull market.
The best stocks are the ones from companies with solid underlying business fundamentals -- such as healthy financials, a competitive advantage in the industry, and a competent leadership team. These stocks are far more likely to survive a recession and then continue thriving during the recovery period.
Though we may be headed toward a recession, that doesn't necessarily mean it's a bad time to invest. By loading up on quality stocks now, you can take full advantage of the upcoming bull market -- whenever it may arrive.
