The S&P 500 (^GSPC 1.02%) entered a bull market in October 2022 after it began climbing from its lowest point. But now that it's reached a new all-time high, it's official by all measures that we're in bull market territory.
While this is an exciting moment for the market, it's normal to feel conflicted. With stock prices on the rise, now could be a fantastic time to invest to take advantage of those gains. But some investors are worried that they've already missed the best opportunity to buy.
The good news is that there are still plenty of good reasons to invest now. But there's also one smart reason to hold off.
Why it pays to invest now
1. Timing the market is next to impossible
It can be tempting to wait until the perfect moment to buy, especially when it's so easy to look back on the market's performance and think about how much you'd have earned if you'd invested right when prices bottomed out.
But timing the market is nearly impossible to pull off effectively, and it often involves more luck than skill. Nobody knows how the market will perform over the coming weeks or months, so if you're waiting for the perfect time to buy, you'll likely end up waiting forever.
Rather than trying to time the market, a safer and more effective strategy is dollar-cost averaging. With this approach, you're investing a set amount of money regularly -- whether that's weekly, monthly, or quarterly.
Sometimes, you'll end up buying when prices are at their peaks. But at other times, you'll invest at a steep discount. Over time, those highs and lows should average out. This strategy can help take the guesswork out of when to buy, and make it easier to avoid getting hung up on the market's short-term fluctuations.
2. Time is your most valuable resource
Stock prices have surged over the past year, but that doesn't mean you can't still make a lot of money. If the market continues to climb, you can take advantage of those gains by investing now. And the longer you wait, the more potential earnings you could miss out on.
For example, say you had invested in an S&P 500 index fund in June 2009 -- just a few months after the index bottomed out amid the Great Recession. If you'd stayed invested, you'd have earned returns of more than 422% by today.
On the other hand, say you had waited two years to begin investing. By June 2011, the market was already well into recovery mode, which may have seemed like a safer time to buy. However, by today, you'd only have earned total returns of around 275%.
There are no guarantees that stock prices will continue rising, but time is an incredibly valuable asset when building wealth in the market. Regardless of what the future holds over the coming weeks or months, investing now can maximize your long-term earnings potential.
3. The market has an impeccable track record
Some investors are concerned that now that the market has reached a new high, there's nowhere to go but down. While there's still plenty of room for growth over the coming years, if a downturn is on the horizon, the good news is that the market has an outstanding track record of recovering from even the worst slumps.
Historically, the S&P 500 has recovered from every single downturn it's ever faced. Although past performance doesn't predict future returns, it's incredibly likely that the market will see positive long-term returns regardless of any short-term volatility.
Over the last two decades alone, the market has experienced everything from the dot-com bubble burst to the Great Recession to the COVID-19 crash and the most recent slump. Yet the S&P 500 is still up by roughly 233% since 2000.
If you're worried about volatility, that's understandable. But the best way to generate wealth in the stock market is to invest consistently and keep a long-term outlook. No matter what happens over the coming weeks or months, the market still has plenty of long-term potential.
A reason to avoid the market right now
1. You don't have any emergency savings
Right now can be a fantastic time to invest, but it's wise to ensure you have enough savings to cover at least six months' worth of general living expenses before you dive into the stock market.
Because the market can be volatile in the short term (even during good economic times), it's wise to avoid pulling your money out too soon after buying. If stock prices drop after you've invested and you suddenly need to withdraw your cash, you could end up selling your investments for less than you paid for them -- locking in those losses.
With a well-stocked emergency fund, though, it's easier to leave your investments untouched while they continue to grow. Even if the market takes a turn for the worse, you can simply ride out the storm and wait for prices to rebound.
The new bull market is exciting, but it's still important to keep a long-term outlook when investing. By investing wisely and keeping your focus on the future, you can potentially set yourself up for significant long-term gains.
