Is it Safe to Invest in Stocks Now?

Is it Safe to Invest in Stocks Now? It’s nearly ingrained in us now – wash your hands, refrain from touching your face, and, by all means, don’t think about touching your stocks.

Don’t touch your stocks?

That may be easier said than done. While some regions show a slow recovery, the COVID-19 crisis isn’t over yet. And looking back over the past couple of months, we’ve seen oil prices tank and stock futures plummet. To say existential fear is at an all-time high might be an understatement.

As an investor, you often want high selling prices and low buying prices – it’s the nature of the beast, right? But this all-or-nothing dilemma can cause you to wait for those lower prices and potentially miss out on a continuous rise.

This is what tends to lure you away from what the market is actually doing and gets you tangled up in market timing – which, by the way, is not an advisable long-term strategy.

Stock Markets Are Volatile So…

Well, the market is always volatile. There is no set formula that illustrates the perfect buy/sell timing. Dollar cost averaging is perhaps the smartest way to look at investing.

Dollar Cost Averaging in layman’s terms is simply setting aside a certain dollar amount at a given interval. For example, you decide every month to invest the same amount no matter where the S&P 500 sits in price.

Many investors use a Dollar Cost Averaging timeframe of every month or quarter. This systematic approach isn’t applied to every type of investment – you wouldn’t use this formula for, say, your bonds or savings accounts.

It’s generally reserved for investments with a bit more volatility, like mutual funds and stocks. You can think of your retirement account as one that utilizes Dollar Cost Averaging in the form of deductions that are automatically taken from your paycheck and placed in your 401k or other retirement plan.

So, if your risk tolerance is low, dollar cost averaging is an advantageous strategy. Think of it like this – say you’ve got a certain sum to invest and you decide to go all-in, all at once.

This can cause what’s known as “peak buying”, which, if prices plummet, can be a bit unsettling. But if you toss that amount into the market with smaller amounts using DCA, you effectively lower your risk and any potential bad effects of a single move because you’ve spread the sum over a lengthened amount of time.

Markets Climb a Wall of Worry

Investors are no strangers to scary periods. Remember the crashes that followed these events?

• World War II
• Vietnam War
• Cuban Missile Crisis
• The Crash of ’87
• The Tech Bubble Crash
• The Crash of ’08

Each of these incidents saw stocks plummeting – but what do they all have in common?

Yep – the market bounced back. Every. Single. Time.

Bear markets, when compared to recovery periods, have been short-lived. Sure, when you’re going through it, it feels like you’ll never come out the other side. But history shows us that bear markets have much less of an impact compared to the power of a bull market in the longer term.

Each of the above noted crises caused a market decline, and each decline was unique. In fact, since 1950, the average lifespan of a bear market has been just over a year. The average bull market? Over five years.

And the returns during a bull market are just as impressive. Recoveries from a bear market are no fun – but an average bull market has seen gains of an average of 279%. Even though you may see scary headlines in the news and further equity declines, you must stand your ground and stick to the plan.

Stocks Don’t Come With Guarantees – But…

There are no fixed returns when you invest in stocks. Now, it is possible to obtain a fixed return with options like savings accounts or Cash Deposit (CD) accounts – but these returns are rarely more than a pittance.

Investing in stocks brings the ability to have greater returns, but accepting the risk involved is just part of the game.

That said, you probably won’t ever meet an advisor who can, in good faith, tell you the ideal time to buy into the stock market. No advisor can tell you when stocks will hit rock bottom or share prices will be lowest. The important things is to remain calm during any economic slowdown.

As Warren Buffett would say, don’t attempt market predictions based on what you find in the newspaper. Gains are not guaranteed, but as the market is a good reflection of the economy overall, it’s safe to say an eventual recovery is coming and the majority of stocks should rise in value in the longer term.

Invest What You Can Afford

Investing can be fun, but only when you’re investing responsibly. If you can afford to lose the amount you’re considering investing – go for it. If you can’t, it’s not smart to invest rent, mortgage, or food money.

And of course, no one ever wants to lose money, no matter how well-off they may be. One of the ways you can reduce your risk (and volatility) is by investing in bank-insured investments.

These investments are insured because they’ve not historically lost any money. That said, the lower the risk, the lower the return.

While the inverse can also certainly be true, the higher the risk also means the greater loss if your investment goes south. Even when you’re investing in safer options, it’s best to split your cash between several different stocks.

Focus on the Next 10 Years

Warren Buffett is a man many turn to for advice when considering investing. When thinking stocks, most people tend to want quick results. And if results aren’t quick, or not in their favor, most people pull their cards.

But Buffett warns against this, saying you don’t know what stocks are going to do tomorrow or through the next week – but over the course of a decade, the vast majority of stocks are certain to raise in value.

Investors tend to be emotional when it comes to their money. Many who consider themselves true investors close up shop the moment stocks begin taking a plunge – they pull their money, turn tail, and run so as not to see further losses.

These “investors” then have nothing invested when the rebound begins. They’ll try to jump back in, only to find that a better part of gains are already past. It’s this type of behavior that can cripple a would-be real investor.

Is It Safe To Invest In Stocks Now?

Instead of putting such stock – no pun intended – in the short-term movements of investments, instead look to other sources of information that can tell a much more detailed story of the journey a particular stock might make.

Whether a stock is safe right now involves more than just what’s currently reflected on the daily ticker. For instance, look at a company’s background, its fundamental tenets, and the past growth and safety of its dividends.

In the long run, you could see better returns as you learn to gauge the market more effectively.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.