After entering a bull market over the past year, the S&P500 (INDEXSNP: ^GSPC) has stumbled in recent weeks. The index is currently down about 4% from its peak in late March, and some investors are starting to feel pessimistic about the future.
It’s unclear where the market is heading, so even experts can’t say for sure whether this downturn will continue or whether stock prices could rebound quickly. Whatever happens, though, there are two moves to avoid for now.
1. Withdraw your money from the market
If you’re concerned that stocks will continue to fall, it may be tempting to pull your money out of the market while prices are still relatively high. However, this strategy can do more harm than good.
Again, it’s unclear what will happen in the market in the near term. Although stock prices could continue to fall, the market could also see a sharp rise tomorrow. If you guess where stocks are going and your guess is wrong, it could get expensive.
For example, let’s say you decide to get your money out of the market now. If stocks skyrocket, you’ll miss out on these potential gains. Then, if you decide to reinvest later, you’ll end up buying the same stocks you just sold – this time at higher prices.
2. Wait for the ideal time to invest
When the market is volatile, many investors will want to wait for the best time to buy. However, because the market is unpredictable in the short term, there will never be an ideal time to invest. And the longer you wait, the more time you waste growing your money.
Time is your most valuable asset when building wealth in the stock market. Often, buying at a “bad” time can still help you earn more than if you waited and invested when the market seemed safer.
For example, let’s say you invested in a S&P 500 Index Fund in January 2009. The market experienced another sharp decline before bottoming out in the middle of the Great Recession, and at the time it may have seemed like a horrible time to invest. Yet over the next five years, you would have earned a total return of around 105%, more than double your money.
Now let’s say you decided to wait just a year and invested in January 2010. The S&P 500 was well into its bull market by then and perhaps it seemed like a safer time to invest. However, you would have only gotten a return of around 66% by 2014.
Time in the market is much bigger than Hourly the market. Even if stock prices fall in the coming weeks or months, spending as much time as possible with your money can still help you earn more than investing at the “best” time.
A smart investment decision to make now
While it may seem counterintuitive, one of the best things you can do right now is ignore short-term market fluctuations. It can be nerve-wracking to invest when the market is volatile, and by ignoring day-to-day movements, it’s often easier to get a clearer picture…
