Last year the stock market was down over 18%. So far this year, stocks are up about 8%, but we face potential headwinds of a recession. Is now a good time to invest? To best answer this question requires a quick review of the stock market’s history.
In the short term, the stock market can be quite volatile, causing concern. However, over the long term, it has been relatively stable. The average annual returns are quite promising if we analyze the S & P 500 across various time frames. Let’s examine some periods ending with February 2023(1):
5 years: 10.382%
10 years: 12.475%
20 years: 10.326%
30 years: 9.749%
50 years: 10.432%
100 years: 10.331%
These stats may make it seem the stock is mostly moving up all the time, but the truth is the market experiences unpredictable periods of significant negative and positive returns. However, if you go back for fifty years and review rolling 15-year returns, there are no negative outcomes.
The key to successful investing
The most crucial aspect to remember is that consistent investment over an extended period is the secret to success. In fact, if you are ten years or more from retirement and you are on a systematic investment program such as a 401(k), down markets are your best friend. This is because you are buying more shares at lower prices in preparation for the market’s inevitable recovery. You’ll know you have arrived as an investor when your instinct is to find money to invest when stocks enter a bear market.
However, if you are nearing retirement, it is crucial to set aside enough funds that are not impacted by market fluctuations. The amount should be enough to cover three to ten years (or more) of lifestyle expenses in liquid fixed-income funds (CDs, Money Markets, Bonds).
Consult your financial advisor to determine what is best for you.
