When is the right time to invest in the stock market?
At Motley Fool Wealth Management, our philosophy is this: We believe in the power of compounding. It’s time IN the market, not timing the market, that matters. If you’re waiting to “time the market”, you’ll likely miss the best days of the market. So, when it comes to investing in stocks, our professional opinion is that the sooner you get started, the better.
The market turns quickly. In fact, over a 20-year period, from January 3, 2005 to December 31, 2024, seven of the ten best days occurred after the worst days, and the second-worst day of 2020—March 12—was immediately followed by the second-best day of the year.1
If you sell your stocks when the market is down or stay out of the market with the intention of getting back in when it rises again, your potential returns can fall dramatically.
Consider this example: Over the last 20 years, if you stayed fully invested in an S&P 500 Index fund, your money should have grown by 9.8%. But if you sold during a market downturn and then missed those 10 best days in the market, your portfolio may have been less than half of that—just 5.6%. And missing the best 20 days would cut your return by more than 70%.
That’s a lot of money!
Or, think about it this way: Let’s say you’re retired at age 65 with $2 million in assets. You might pull that money out of the “risky” stock market, and put it into cash and/or bonds. But if you were to leave it in the market, even an average annual return of around 8% would have seen you more than double your money by age 75!
Increase that rate of return to 10% and you could be looking at over $5 million dollars, and that’s without contributing anything beyond your initial $2 million investment.
All investing involves risk and can lose money. But from our perspective, this is a strong case for continuing to invest at least a portion of your assets in the stock market, even during retirement.
None of us knows when the market will hit the top or the bottom. That’s why we believe that staying fully invested—yes, even through downturns—can be the best way to achieve the highest growth for your wealth. It’s easier said than done, though. Fortunately, an investment advisor can help.
1 JP Morgan Asset Management Guide to Retirement. Data from Jan. 1, 2005 through Dec. 31, 2024.