The world is a turbulent place right now, and some investors are concerned that this could lead to greater volatility in the stock market.
If you’re worried about potential volatility, it may be tempting to pull your money out of the market or take a break from investing for the time being. Is this really the right decision?
Is it safe to invest now?
When the market is tough, it may not seem like the right time to invest. However, there are a few reasons to keep going no matter what.
On the one hand, it is extremely difficult to time the market. In theory, it can be a good idea to withdraw your money just before stock prices fall and then reinvest when prices are at their lowest. But since the market is often unpredictable, it is almost impossible to know exactly when to sell.
Plus, picking the wrong time to sell could be a costly mistake. Let’s say, for example, that you withdraw your money now, thinking that stock prices will go down. If the market shoots up, however, you will miss out on those gains. Then, if you reinvest later to get back into the market, you might end up buying at a higher price.
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Even if you choose not to sell but simply to stop investing, this also presents risks. The market is constantly fluctuating and will frequently experience short-term highs and lows. If you only invest when the market is booming, you are not only buying when prices are higher, but you are also wasting valuable time to grow your money.
What should you do with your money?
In most cases, it pays to continue investing even when the market is turbulent. One caveat, however, is to check that you have a solid emergency fund.
If you invest every reserve dollar, you may have to withdraw your money if you face an unexpected expense. And if stock prices have fallen, you could end up selling at a loss. However, once you’ve set aside at least six months of savings, it’s safer to invest knowing that you won’t need to stretch your wallet to make ends meet.
If you continue to invest, the trick to surviving periods of volatility is to stick to solid stocks and maintain a long-term perspective. Companies with sound fundamentals are more likely to recover from market downturns, even if they suffer short-term adverse effects. By staying invested and weathering the storm, chances are your portfolio will eventually rebound.
Nobody knows for sure what will happen to the market. We may or may not see more volatility in the weeks or months ahead, but it never hurts to start preparing now. By continuing to invest and choosing your investments wisely, you will be prepared no matter what happens with the market.
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