Q. The stock market has done well over the last several years. Is this still a good time to invest?
It’s always a good time to invest in the stock market if your plans and time frame are compatible with investing in stocks. It should have nothing to do with how the market has performed recently.
Stocks have certainly grown significantly from their March 2009 lows. Since then the Dow Jones Industrial Average has grown from below 6,500 to over 22,000 today. Including dividends, the returns for the eight year period is a little over 17% per year. Pretty impressive.
I can understand your hesitation with investing in stocks when they have put together such a strong performance. Surely, one can easily think, as soon as I invest the market will crash. It can make the decision to invest a difficult one because you are making it more about your feelings than your plans and time frame.
Any money that will be needed in less than ten years shouldn’t be invested in the stock market. Interest rates are pathetic right now, but if you’re saving for a need in the short-term – meaning less than ten years – it makes sense to leave those funds in safe accounts. This would include funds set aside for a new car, a down payment on a home, or college expenses for your kids in high school.
Since you would be investing in the market for at least ten years, don’t concern yourself with what the market has done recently and whether today is a good time to invest! When you begin spending your investments in retirement 20, 30 or 40 years from now, the price you paid for the shares in 2017 will be irrelevant. In fact, if you’re young and investing regularly in your 401k or IRA, a flat to lower market works in your favor as you’ll be buying stocks on sale. Don’t fear the near-term results of the stock market. Instead, develop the habit of investing for the long-term.
John is a CPA and personal finance coach. Email your questions to firstname.lastname@example.org.
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