With the stock market reaching new heights, it can be an exciting time to invest. But while many investors are optimistic about the future, others are concerned that perhaps the best buying opportunity has already passed.
Buying when stocks are at their highest isn't always the best economic move, but if the market continues to soar, now is the best time to invest before prices rise further. There may be. That said, no one knows exactly where the market is headed, so no one knows whether prices will continue to rise.
All of this can be confusing for investors who just want to get the most out of their money. While past performance doesn't necessarily equate to future returns, it's helpful to see what history has to say about times like this.
Is it safe to invest now?
The stock price has increased significantly over the past 18 months.of S&P500 It bottomed out in October 2022 and is up 45% since then. Nasdaq During this period, the price soared by a whopping 58%. So investing now means paying a much higher price than if you bought a year or two ago.
But does that mean it's a bad time to invest? History says no.
Based on the stock market's historical performance, it's not necessarily a bad time to buy, as long as you have a long-term outlook. Although the market can be volatile in the short term (even in good times), it has a perfect track record of positive returns over many years. However, the key is to invest sooner rather than later.
For example, let's say you invested in an S&P 500 index fund in January 2011. At that point, the index was well into its post-Great Recession bull market, having soared a whopping 86% from its 2009 low point.
At the time, it may have seemed like a missed buying opportunity. Still, you've earned over 313% total return to date.
Now, let's say instead of investing in 2011, you wait a few years and buy in January 2013. To date, the total return has remained at approximately 265%.
Finally, let's say you decide to postpone investing a little longer and finally invest in January 2015. In that scenario, the total return to date would drop to just 153%.
Of course, the best opportunity to buy would have been in 2009, when the S&P 500 hit its lowest point. But no one knew at the time that a bull market was about to begin, and he would have made much more money investing in 2011 than waiting a few more years.
Now, this does not necessarily mean that the market will follow a similar path in the future. But if history has shown us one thing, it's that it's much more profitable to stay invested for the long term than trying to buy at the right time.
The key to maximizing your profits
Having a long-term outlook is important to building wealth, but choosing the right investments is just as important. Strong stocks are much more likely to have consistent growth over time and are also more likely to recover from the inevitable downturns the market will face in the future.
While there's no single right way to invest, the strongest stocks come from companies with sound business fundamentals, from solid financials to competitive advantages to knowledgeable leadership teams.
If you have a robust portfolio filled with healthy stocks, you won't have to worry as much about the future of the market. All stocks can experience short-term volatility, but strong companies are more likely to weather the storm and earn positive returns over the long term.
Investing can be daunting even when the stock market is thriving, but it remains one of the most effective ways to create wealth. By starting early and investing in the right places, you can protect your money as much as possible while maximizing your long-term return potential.
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Is now a good time to invest in the stock market? Here's What History Says was originally published by The Motley Fool.
