You'll Never Buy at the Bottom. That's OK.

How good are you at predicting things? Are you fairly accurate when forecasting the weather over months? Do you have a solid track record of predicting which teams will win various sports championships? Odds are, you're not much better than average, at best, at predicting things.

And if you're trying to figure out when the stock market has bottomed out, so that you can jump in, that's another futile exercise. You'll almost certainly never buy at the bottom -- and that's OK. Here's why.

Image source: Getty Images.

Don't try to predict the stock market

Here's a little exercise that can help you appreciate how difficult it is to try to predict what the stock market will do from year to year. First, know that, on average, the stock market drops in value fairly frequently. Stock market declines of 10% or more have happened roughly every two years, on average.

Imagine that it's the end of the year 2000. The S&P 500, a common proxy for the overall market, has dropped by 9%. Is that the bottom, before an upswing? You probably don't know. Fast forward a year. In 2001, the S&P 500 has fallen again! By nearly 12% this time! Now... what do you think? You might assume that it's a pretty safe bet that the market will recover in 2002 and that it's a good time to buy.

Well, in 2002, the S&P 500 falls again -- this time by a whopping 22%. See? You just can't tell. You never know when the market will fall or will fall again. It may retract at any time in part because it got ahead of itself, or there may be some triggering event, like a financial crisis or a global pandemic.

By the way -- it's also hard to predict when the market will fall. Check out the table below and you'll see just how irregular returns can be. You might have reasonably expected a pullback in 2017, after eight consecutive years of gains -- but you'd have been wrong. The market posted a hefty gain of nearly 22% in 2017.

Source: Slickcharts.com. Returns reflect reinvested dividends.
*Year to date as of November 7, 2022.

When is the right time to buy into the stock market?

You might now be wondering when, exactly, is the right time to buy into the stock market? Well, there are two good answers to that question:

When you're ready

Before investing in the stock market, it's smart to really be ready. That means you've paid off any high-interest rate debt and you have an emergency fund in place that can support you for at least a few months, in case of a job loss or costly surprise expense. It also means that you've read and learned enough about stock investing to know what to expect: You know that the market is volatile in the short run, but that it has always gone up over long periods. You know that money you may need within five (if not 10) years shouldn't be in stocks, because of that volatility. You know that one of the best roads to riches is investing in the stock market for the long run -- for decades, ideally. You also know that simple, low-fee index funds can be all you need.

Anytime

Once you're ready to invest in stocks, the best time to do so is usually any time. This is especially true if you're going to be investing regularly. Yes, the market might drop tomorrow, but it might also go up. No one knows what it will do. If you keep plunking, say, $500 into the market every month or maybe $3,000 every quarter, you'll be getting more shares when the market is down and fewer when it's up. (This is dollar-cost averaging, by the way.) And you won't be left on the sidelines when the market surges. If you're investing a big lump sum, though, and the market has gone up a lot in recent years, you might opt to invest only part of it now, investing the rest in chunks over the coming year or so.

Being a long-term investor in the stock market is a great way to build wealth for yourself to help secure a comfortable retirement. You'll have to jump in at some point, and there's a good case for jumping in soon, without worrying about whether the market has hit a bottom.