I get the question quite often from clients, friends and family… Is now a good time to invest? Usually, the question comes with a pre-conceived opinion by the person asking of how I should answer.
“The market is up a lot, should I wait until there is a dip and buy then?” – circa late 2021 and anytime the market is up.
“Things seem to be getting worse, we’re heading for a recession, should I wait until things calm down before I put my cash in the markets?” – circa June 2022 and anytime the market is down.
The thing is, the answer is quite simple and based on just one very important caveat. If you’re a long-term investor, then it’s always a good time to invest.
Notice the key phase here: if you’re a long-term investor. If you’re trying to time the market to make a quick buck or play some meme stock picking games, I have no idea if now is a good time to invest or not. I could spin a narrative and provide an educated guess as good as the next guy, but that’s all it would be – a guess.
However, if you’re investing in a diversified portfolio of global stocks for a long period of time, then the answer to the question is just a simple – YES! Now is a good time to invest. Consider the chart below, which I borrowed from this blog post by Ben Carlson.
The chart shows the percentage of time stocks outperform bonds and cash (T-Bills). It looks at various holding periods for the years from 1802-2021, and a slightly more recent sampling of 1871-2021. At a holding period of just five years, stocks outperform bonds and cash approximately 70% of the time. As the holding period increases to 10 and 20 years the amount of time stocks outperform bonds and cash increases to 80-90% of the time. At 30 years, it’s pretty much a sure thing that holding stocks will earn more money than bonds or cash.
So, if you’ve set aside enough cash for emergency savings, if you have enough saved for any short-term goals or expenditures, then by all means, invest the rest. There is no better time than the present for money that you want to grow over a long period of time.
This is especially true during the current period of above average inflation. Cash in your checking and savings account is losing more purchasing power today than at any point over the last 40 years. Over the long run, stock investments grow your money net of inflation. Putting extra money to work now is always the best time!