This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
Are you thinking about starting to invest but on the fence about getting your money into the market during these turbulent times?
It's natural to be worried about investing in a recession, especially as the stock market has been somewhat volatile lately (to put it mildly). But while you may be uncertain about jumping in with both feet, there are a few great reasons it makes sense to get your money into the market ASAP.
That doesn't mean investing is right for everyone, though. So here are three big reasons to invest now along with three reasons to wait.
3 reasons to invest now
Why to get your money into the market, ASAP.
- There's never a wrong time for long-term investors to get started: When you're investing for the long term, it doesn't really matter when you buy in since you should (hopefully) make a profit over time. That's true even if you buy during a bubble, because while you may suffer short-term losses during a market correction, your investment should come back strong during the recovery that will inevitably follow.
- Recessions present buying opportunities: Periods of economic downturn often provide the opportunity to buy index funds or shares of high-quality companies when they're on sale. You could potentially set yourself up for higher returns down the line by buying at a discount.
- Trying to time the market could cost you thousands: Over a long investing career, missing just a few key days could cost you hundreds of thousands of dollars. It's impossible to predict when those important days will happen; few people see rallies coming before they occur. Instead of trying to wait to invest until stocks hit rock-bottom prices, it's better to get your money in now so you won't miss out on any market surges that could net you major profits.
3 reasons to wait
Although there's no wrong time for long-term investors to get started, there could be a wrong time for you to personally start investing if your finances aren't in good shape. There are three key reasons now may be a bad time to put your money into the market.
- You don't have an emergency fund: At all times, but especially in these turbulent times, you need to have an emergency fund because you never know when an illness, income cut, or other financial emergency could occur. You don't want to invest only to have to sell soon after (potentially at a loss) because you need the money for an emergency. So make sure you have liquid funds first, to cover at least three to six months of living expenses, before putting your money into the market.
- You have a lot of high-interest debt: Although stocks have, over time, produced a better average return than virtually any other investment presenting a reasonable risk, it's very unlikely they'll produce a return on investment that's higher than the one you'd get from paying off high-interest debt. If you owe money on credit cards, payday loans, or other debt that's costing you a fortune in interest, get that taken care of before investing.
- You haven't devised an investment strategy: Long-term investors with a sound strategy almost always do well over time. But first, you need that sound investment strategy. If you're willing to spend time learning about and monitoring your stocks, you may be able to beat the market by purchasing shares of individual companies. But unless you're really interested in doing that, your best bet may be to build a diversified portfolio of index funds.
Should you invest or check other items off your to-do list first?
The bottom line is, if you have the financial basics covered, there's no bad time to invest in the market. Whether you buy during a correction or the peak of a bubble, you should still do well if you pick solid investments and leave your money alone over time. History has proved it.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
