Is it actually safe to invest in the stock market right now? Or should you wait until 2025?

The stock market has always been known for its volatility, but the past few months have been particularly tough for investors.

After falling more than 8% between mid-July and early August, S&P 500 (^GSPC 0.28%) it bounced back quickly, only to drop 4% in just one week in early September and make another almost immediate comeback.

While the S&P 500 is still up nearly 20% for the year, the whiplash from all these ups and downs can be exhausting as an investor. Other variables, such as the presidential election and a major interest rate cut from the Federal Reserve, could further weigh on stocks.

Given the volatility of the market, is it actually safe to invest right now? Or should you wait until the new year to see if stocks stabilize? The answer is simpler than you might think.

Image source: Getty Images.

When is the right time to invest in the stock market?

Despite the types of ups and downs, there is never a bad time to invest in stocks. The market can be shaky in the short term. But if you invest in the right places (ie, stocks of companies with solid business fundamentals that are healthy enough to weather periods of volatility), your portfolio is almost guaranteed to bounce back and earn positive returns for decades.

The only way to lose money on a stock is to sell after the price has fallen below what you paid for it. As long as you hang on to the stock, even if the price goes down, you haven’t lost money until you sell and lock in those losses. If eventually the price goes up again, you won’t have lost any money.

Now, investors picking individual stocks will absolutely end up picking some losers. Nobody is right all the time. As investment legend Peter Lynch said, “In this business, if you’re good, you’re right six times out of 10. You’ll never be right nine times out of 10.” But the big winners in a diversified portfolio can more than make up for these, and if you stick with investing in a general market-tracking fund, time is your friend.

A long-term perspective is key to surviving periods of volatility. Even if you invest in a seemingly dire time right before the market faces a downturn, your portfolio can survive if you stay in the market and avoid selling.

For example, let’s say you invested in an S&P 500 index fund in January 2022. The stock was about to enter a one-year bear market and wouldn’t make a new all-time high until early 2024, and the investment yours would have lost value almost immediately. However, by today, you would have made total profits of almost 20%.

^ SPX data by YCharts

By selling the investment later in 2022 or even 2023, you would have lost money. But if you stayed in the market until prices recovered, you would have made positive total returns despite the temporary loss in value over those two years.

To protect your portfolio, it’s wise to keep your money in the market for as long as possible — ideally decades. It is impossible to predict how the market will evolve in the coming weeks, months or even years. But historically, it has always managed to achieve positive total returns over the decades.

In fact, data from Crestmont Research suggests that by holding an S&P 500 index fund for 20 years, you’re almost guaranteed to see positive total returns. Analysts examined the index’s 20-year total returns and found that every period in its history has ended with gains. In other words, if you invested in an S&P 500 tracker fund at one point and held it for 20 years, you would have made money regardless of what the market was doing during that time.

Why you might want to wait to invest

Taking a long-term view, there’s never a bad time to invest — as long as you’re investing in the right places and can afford to leave your money in the market for the foreseeable future. These two factors are key, and without them, you’d be better off waiting to buy.

It is essential to do your research when deciding where to invest. Sometimes it’s as simple as weighing different S&P 500 index funds or choosing whether to contribute to an IRA or 401(k). Investing doesn’t have to be complicated, and low-effort investments can still make you a lot of money over time.

However, if you’re investing in individual stocks, you’ll need to commit to researching each company you’re considering owning — and then keeping up with those stocks to make sure they remain strong investments. If you can’t put that much time or effort into your portfolio right now, that’s okay. But rather than risk investing in the wrong places, it’s better to take a simpler approach or hold off on buying for now.

Similarly, if you’re tight on cash, investing may not be the best move. If you invest every last dollar and then face an emergency expense, you may have no choice but to pull your money out of the market at a less-than-ideal time, potentially locking in losses. Before investing, it is wise to have at least three to six months of savings in an emergency fund.

While the market may be discouraging right now, waiting until 2025 to invest isn’t necessarily a safer move. Instead of worrying about when to buy, it’s much better to focus on buying quality stocks and holding onto them for as long as possible.