Is it Time To Start Investing Again?
The dismal performance of the stock market over the past several months has been a cause of great stress and worry for most Americans. Many of us are exposed to the stock market in some way, whether it’s through a retirement plan at work or within brokerage accounts. As people watched their nest eggs shrinking substantially day after day, many decided that the discomfort of being in the market was too much to bear and they sold. Others held on to their stocks, losing more than 50% of their assets in many cases over the last several months.
The biggest questions investors have today is whether or not this is the time to start investing again. Anyone asking this question, though, is playing a dangerous game, because timing the stock market is virtually impossible, despite the claims of day traders everywhere. The answer to this question depends completely on whether or not you have the risk tolerance to be in the stock market at all.
The stock market has always been a place where risk is a factor, but the risks of being exposed to the ups and downs of the markets have been magnified throughout this bear market. We accept these risks as investors, because traditionally the rewards for taking on that risk have paid off in the long run. Short term volatility is the price we pay for the long term returns of the stock market, which have been greater than any other asset class.
The goal of every investor is to buy low and sell high. However, our emotions often tell us to sell when the market is falling and to buy when the market is rallying. Few investors have the discipline to stick to an investment plan through difficult times, but those who stay invested historically come out ahead of investors that jump in and out of the market.
So the reality is that it doesn’t really matter what direction the market moves in tomorrow, or what the next stimulus package will look like, or who the government bails out as the recession wears on. All of these factors matter in the short run, but they shouldn’t be a big part of your investment decisions. If you have a risk tolerance that can handle short term volatility and you need the long term returns of stocks, then now is as good a time as any to get into the market.
The question you should be asking is not whether or not now is the time to invest in stocks; the question is simply whether or not you should invest in stocks at all. There are tools and resources available to help investors determine what their exposure to stocks should be, as well as professionals who can be of great assistance. No one knows what direction the market will move in tomorrow, but sticking to sound investment principles will help you to avoid making the irrational decisions that emotional investors often make.
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Tags: Investing, Market, Risk, Stocks, Volatility
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