The stock market may crash. It might also see massive growth.
Both of those things are always true, but they seem magnified in the current climate. We're living in uncertain times due to the coronavirus pandemic, and that can lead to major speculative swings in stock prices.
That can be terrifying for someone looking to get into the market, or even someone considering adding more shares to their portfolio. The reality is that if you buy stock and hold it over the long term, you have nothing to fear.
If you have your finances in order, now is as good a time as any to buy stocks. Image source: Getty Images.
Who should be buying stocks now?
Before you consider investing in the stock market, you should consider where your finances are. You need to make sure you have some basics covered before you start buying stocks.
- Do you have an emergency fund of at least six months to cover living expenses?
- Have you paid off all high-interest debt, including credit cards and personal loans?
- Are you maxing out an employer match in your 401(k)?
After that, the next thing you need to consider is how much money you have left over each period, whether you define a period by paycheck, by month, or really by any period of time you choose. This should be cash you won't need for 3-5 years at the minimum.
If you meet these criteria, it's reasonable to start buying shares of stock. But before you do that, it's important to have goals, and to know your personal tolerance for risk. Are you investing for retirement in 30 years, or to buy a house in 5? Will having some of your money in riskier stocks keep you up at night, and can you tolerate the volatility that's inherent in investing?
If you have a diverse portfolio filled with strong companies, your portfolio will grow over time. That does not mean it won't experience drops, suffer through market crashes, or face other calamities. It's also important to remember that the unexpected can happen, and even really strong companies can sometimes hit stretches where their share prices fall (sometimes by a significant percentage).
Be an investor in stocks
If you want to be a long-term winner in the stock market, you have to be a buy-and-hold investor. Before you buy any stock, think about why you want it in your portfolio. Is it because you have read up on the company, believe in its mission, and understand its path to success? If that's the case, then you should only sell if something changes your investment thesis.
You should not sell shares because a company missed revenue projections in a quarter. It has been proven that fewer trades and longer timelines build wealth. That does not mean that if a company makes a major shift and you no longer believe in it that you can't sell, but it does mean that you should have a pretty high bar for selling.
The stock market plus time can help you reach your financial goals. If you meet the criteria above, the best day to start investing in stocks is today.
Go slowly. Do your homework and make sure you're taking advice from credible sources (not people on social media, who may have agendas that don't match yours). Remember that you're playing a very long game, and that's not always an easy thing to do -- but if you can steadily invest and hold onto those investments for years (or even decades), you will get where you want to go.
If you have the money and have your finances in order, now is the right time to buy stocks. Yes, the market can be volatile -- and it's perhaps more volatile than normal right now -- but if you keep your eye on the distant horizon, then there is no better time to start investing than now.
