These financial times can feel unnerving with those spicy headlines about the stock market. You may have even looked at your account, and maybe it's not compounding as fast as you thought it would, or you see a little red here or there with some negative numbers. All this may make you wonder if you started investing at the wrong time. 

Perhaps you're considering stepping into the world of investing, drawn by the potential of compound interest to grow your money. You've made room in your budget, but you're unsure about the best time to enter the market.

You might be thinking, "When's the right moment to dive into the stock market? Should I wait for a recession to pass or jump in before a major upswing? How do I time the market perfectly?"

When is the best time to start investing in the stock market?

My answer may surprise some because of its simplicity: the best time to invest in the stock market is NOW, regardless of whether the market is up, down, or even sideways. Investing in the stock market is always a good idea, no matter the day or the time! Why? Because our money does best when it has time, and time is the one thing we can never get back.

Here, we're all about long-term investing. We're not swayed by a market dip, even if it lasts a few years. We're patient and secure in the knowledge that the value of our shares will eventually bounce back. This long-term strategy is a key to successful investing.

Fun fact: The US stock market has always recovered. It's a reassuring truth that should give you confidence in your investments. Remember, you haven't actually lost any money if you haven't sold anything. 

So, what should you be doing? Let's dive in. 

Time in the market vs timing the market

First, let's look at the big picture for a second. If you zoom out and look at the stock market over the past few decades, you'll notice something interesting: despite all the ups and downs, it has consistently trended upwards. Sure, there have been some significant dips and crashes along the way (looking at you, 2008!), but overall, the market has steadily increased in value.

So what does that mean for you, the investor? If you're in it for the long haul, you don't have to worry about those dips because the stock market always recovers.

Let’s be honest: trying to time the market is a recipe for disaster. It’s time-consuming, expensive (hello, short-term capital gains taxes), and we don’t have the insider info like Nancy Pelosi. Instead, invest consistently over time and let the power of compound interest do its thing.

To sum up, there really is no such thing as the "best time" to invest in the stock market, but there is such a thing as long-term investing, which can protect you against the market's dips. Zoom out, look at the big picture, and don't get spooked by temporary dips.

Historical stock market trends

Let's take a closer look at some of the historical trends in the stock market to show you what I've been saying.

Let's look at the S&P 500 index, which tracks the performance of the top 500ish companies in the United States (like Apple, Google, Amazon, and Tesla, to name a few). We can see that it has been on a steady upward trajectory for literal DECADES. The S&P 500 has averaged an annual return of about 11% over the past 90 years. That's a pretty impressive track record!

Of course, there have been some major dips along the way, like the Great Depression in the 1930s, the dot-com crash in the early 2000s, and the recession of 2008, and who can forget *cough, cough* Covid in 2020? But what's truly remarkable is that the market has always bounced back and continued its upward trend, showing its resilience even in the face of major crises.

The longer you hold onto your investments, the more time they have to grow and compound, and the more likely you are to see significant growth. Welcome to the world of long-term investing!

You'll likely come out ahead if you're patient and willing to invest for the long haul and ride out the inevitable bumps. However, it's important to remember that there are no guarantees in the stock market, and caution should always be exercised. But the historical data suggests that long-term investing is a solid strategy for building wealth over time.

How to invest in the stock market for long-term gains

While the stock market has historically trended upward over the long term, there will always be periods of volatility and uncertainty. You only want to invest money that you are not going to need for a very long time. Money that you put into the stock market should be money that you do not plan to need for an emergency, a vacation, or any upcoming expense. It should be money that you don't need for at least five years or more.

Here are a few strategies to help earn long-term gains when investing:

1. Diversify your portfolio

Diversifying your portfolio is one of the best ways to protect your investments against stock market dips.

Don't put all your eggs in one basket. In other words, avoid putting all your money in a single stock and instead spread your money across multiple assets. This can help spread out your risk and reduce the impact of any single market downturn, giving you a sense of security and peace of mind.

My personal favorite way to invest in multiple things all at once? Index funds! Index funds basically replicate the performance of a particular market index, like the S&P 500, Total Stock Market, Foreign Stock Market, etc. Instead of trying to beat the market by actively selecting individual stocks or other securities, index funds seek to match the performance of the overall market. This passive investment approach can offer diversification and typically has lower fees compared to actively managed funds. Because they simply track an index, they generally require less maintenance, which can result in lower costs for investors.

2. Invest in different assets

Another critical aspect of protecting your investments is asset allocation. This involves deciding how much of your portfolio to allocate to different types of assets.

For example, you might choose to put more money into assets such as bonds as you approach retirement age because these assets tend to be less volatile than stocks. However, if you are many, many years from retirement, you might choose to allocate more of your portfolio to stocks and other similar assets over things like bonds. This is because while they tend to be higher risk, they also yield a higher rate of return.

If you want a hands-off approach when it comes to allocating your money to different types of assets, you can invest in a Target Date Fund. A Target Date Fund is a pre-packaged diversified portfolio that automatically rebalances over time. With this type of fund, you don't have to worry about making complex investment decisions. Instead, you can rest assured that your assets are well dispersed.

3. Avoid panic-selling

We need to leave our emotions at the door. Emotions do not belong in investing. There are going to be ups. There are going to be downs. It could be tumultuous for quite a long time. Selling your investments and cutting your losses can be tempting, but this is often a mistake. The stock market is impossible to time, and trying to predict when to sell and when to buy back puts you at a higher risk of losing money. Instead, stick to your long-term investment plan and resist the urge to make emotional decisions based on short-term market movements. Remember, the market always recovers!

Wrapping up

Remember, investing is a marathon, not a sprint, and a well-designed investment plan can help you stay on track and achieve your financial goals. So don’t panic, ignore the headlines, and go on with your life.

When in doubt, zoom out! 😎