Is now a good time to invest?

If there’s one thing we as a society can agree on, it’s this: It’s less painful to rip off a bandage quickly than to slowly pull it off your skin. Even though we know this, we still need to mentally prepare ourselves for the shooting pain, even if it’ll subside quicker this way.

Now, what on earth does proper bandage removal have to do with investing? It’s a fair question.

For a lot of people, investing is that bandage that needs to come off. You know you should be investing, but you’re apprehensive about getting started. It can feel a bit daunting; you don’t want to experience a loss, after all.

But what are you going to do, keep the investing bandage on forever? Of course not!

It’s time to rip it off once and for all. If you’re wondering if now’s the time to invest, the answer — generally speaking — is yes.

Time in the market > timing the market

Since investing is intimidating for some, they’ll stress about finding the right time to get into “the game.” They might wait for the market to dip before they get started, or wait for a strong stock market to jump in on the action.

Don’t overthink it.

The truth is, the majority of your return on your investment could be tied to 5 or 10 of the best days over the course of 20-plus years. When those days occur in your investment time horizon — the period of time during which you’re investing — can’t be predicted, but the longer you’re “in the game,” the more chance you give your money to reap the rewards of those good days.

The chart below shows the return on a $10,000 investment in the S&P 500 from January 2, 1996, to December 31, 2015:

Over that 20-year period, the 10 “best days” amounted to nearly half the return earned over that timeframe. That’s right: 10 of the roughly 7,300 days over that timeframe made that much of a difference!

That’s why it’s so important to begin investing as early as you can. It gives your money the most opportunity to benefit from for one or more of these top-performing days.

What's your time horizon?

Investing doesn’t yield as strong results in the short term as it does in the long term. That’s because the longer your time horizon is, the more opportunity your money has to grow during times of strong markets and rebound during market corrections. You can skew your portfolio to primarily stocks in the early going and then scale back your exposure to risk (shift your portfolio to include more bonds) as the end of your time horizon approaches. So if you’re investing with a time horizon of 10, 25, or 30 years, the time to invest is now. 

On the flip side, let’s say you’re planning your wedding, which is next year. You’re considering investing your $20,000 savings in the hopes of earning a strong return. This isn’t advised. The stock market is very difficult to predict in the short term since the market always cycles between peaks and valleys. What happens if you invest that $20,000 during a time of growth, but the market corrects itself months later? In this case, you may want to consider saving that money through a traditional savings account, certificate of deposit (CD), or money market account.

What if you’re investing for a goal that’s somewhere in between those two extremes, such as 3-4 years from now? You could invest that money; there’s not as much risk as in the wedding example above, but it’s still not a lot of time to rebound from any potential losses. As a result, you should consider going with a conservative investment approach and build a portfolio of mostly bonds.

What to remember

By and large, if you’re asking yourself if now’s the time to start investing, the answer is almost always “yes.” Time in the market is the true secret to success; the sooner you expose your money to the stock market, the better chance you have of experiencing as many of those “best days” as you can during your time horizon.

That’s assuming that you’re investing for the long term rather than the short term. If you’re investing for a short-term goal, you should consider scaling back your portfolio’s exposure to stocks or opt not to invest at all.

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