If you’re nervous about potential volatility, it may be tempting to either pull your money out of the market or press pause on investing for now. Is that really the right move?
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Is it safe to invest right now?
When the market is rocky, it may not seem like the right time to invest. However, there are a few reasons to continue, regardless of what’s happening.
For one, timing the market is extremely difficult. In theory, it may make sense to pull your money out just before stock prices fall, then reinvest when prices are at rock bottom. But because the market is often unpredictable, it’s nearly impossible to know exactly when to sell.
In addition, choosing the wrong moment to sell could be a costly mistake. Say, for example, you withdraw your money now, thinking stock prices will fall. If the market surges, though, you’ll miss out on those earnings. Then, if you reinvest later to get back in the market, you could end up buying at a higher price.
Even if you choose not to sell but simply stop investing, that poses risks, as well. The market is constantly fluctuating and will frequently experience short-term ups and downs. If you only invest when the market is thriving, not only are you buying when prices are higher, but you’re also missing out on valuable time to grow your money.
What should you do with your money?
In most cases, it pays to continue investing even when the market is turbulent. One caveat, however, is to double-check that you have a solid emergency fund.
If you invest every spare dollar, you risk having to pull your money out if you face an unexpected expense. And if stock prices have dipped, you could end up selling for a loss. Once you have at least six months’ worth of savings set aside, though, it’s safer to invest knowing you won’t need to tap your portfolio to make ends meet.
If you continue investing, the trick to surviving periods of volatility is to stick to solid stocks and maintain a long-term outlook. Companies with healthy fundamentals are more likely to recover from market downturns, even if they take a hit in the short term. By staying invested and riding out the storm, there’s a good chance your portfolio will bounce back eventually.
Nobody knows for certain what will happen with the market. We may or may not see more volatility in the coming weeks or months, but it never hurts to start preparing now. By continuing to invest and choosing your investments wisely, you’ll be ready, regardless of what happens with the market.
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