With earnings season in full swing, it's encouraging to see many businesses posting strong revenue and earnings growth. This has propelled the market to fresh highs.
Just look at the major indices. The S&P 500 and Dow Jones Industrial Average are in record territory, with the tech-heavy Nasdaq Composite index close to breaching its November 2021 peak. Bullish sentiment has taken over.
If rising stock prices have encouraged you to put money to work, it's still a great time to do so. Even $1,000 can get you on the right path to reaching your financial goals. Let's take a closer look at the best way to start investing today.
The economy and the stock market
I think it's first extremely important to understand that the real economy and the stock market are two totally different things. Higher interest rates, ongoing corporate layoffs, record credit card debt, and rising delinquencies aren't signs of an economic backdrop on solid footing.
Even more alarming, the Treasury yield curve has been inverted since late 2022. This unusual occurrence typically precedes a recession. Consequently, even though unemployment remains low at 3.7%, there is a very real possibility of an economic downturn in the near future.
So, why is the stock market hitting new highs? This is where the dichotomy between the economy and stocks begins to show. Investors are always looking toward the future, and their expectations are what influence asset prices.
Based on what the Federal Reserve has signaled that it plans to do, which is cut interest rates in 2024, investors might simply be front-running this possibility. Lower rates mean savers get less yield on their balances, forcing them to put money into riskier assets that could earn higher returns. Stocks fit into this category.
Investors are anticipating more favorable monetary policy ahead. And as a result, they are bidding up stock prices.
Image source: Getty Images.
Follow this approach
It can be discouraging knowing that you might have missed the 30% rally in the S&P 500 since the start of 2023. But now is still a wonderful time to invest.
Over many decades, the broad index of 500 of the largest and most profitable companies in the world produces an average yearly return of about 10%. Even if investors allocated capital at market highs, over the next 10 years the annual gain would've still been in the same ballpark.
That's a huge relief, and for someone with $1,000 to invest, it means you don't need to try to time the next market bottom before putting money to work. The best time to invest was 10 years ago. The second-best time to invest is right now.
With that being said, I think it's a smart idea to buy an S&P 500 index fund, like the Fidelity 500 Index Fund, and plan to hold for a long time. Understand that volatility is just a part of the process to achieving satisfactory gains. Based on the market's historical averages, that $1,000 could be worth nearly $19,000 in 30 years.
A proven way to boost your returns is to dollar-cost average, adding additional capital every month or quarter. This strategy can be fully automated. And it not only allows you to invest at various price points, but perhaps more importantly, you develop a habit of saving and investing. That initial $1,000 could be worth much more over time.
I understand that being on the sidelines, particularly while the market keeps hitting new all-time highs, can be disappointing. It feels like you're missing out on valuable gains. But the longer you wait, the more money you could be leaving on the table.
Now that you have some basic knowledge about what next steps to take, it's time to invest.
