During early November, the S&P 500 (^GSPC 0.40%) rose almost 6%, marking its best weekly gain of all 2023. It also had its longest streak of consecutive daily gains in two years. This year has been good for the S&P 500 — up over 17% year to date as of this writing — but the recent rally marks a reversal after the index fell 10% in the preceding three months.
When the stock market rallies, it’s natural for investors to wonder if it’s a good time to invest. On one hand, investors may think they’ve missed the boat. On the other, investors may take it as a positive sign for what’s to come.
Regardless of which is true, the question of whether now’s the time to invest has a simple answer: yes. However, that’s not necessarily the question you should be asking.
Just another week in the volatile life of stocks
If there’s one thing that’s certain in the stock market, it’s uncertainty. The stock market and volatility go together like peanut butter and jelly. The index may be up 17% so far in 2023, but it wasn’t a linear path getting there.
It’s not always easy, but the more you expect volatility, the less likely you’ll be to try to time the market. It’s tempting to want to rush to put money in the stock market when you anticipate prices rising or selling stocks when you anticipate prices dropping. Unfortunately, that’s a losing game.
Timing the market may “work” occasionally, but it’s more a function of luck. History has shown it’s virtually impossible to do consistently over the long run.
There’s a better question to ask
Instead of debating if now is the right time to invest, the question should be, “How much can I afford to invest right now?” There’s an old saying that goes, “The best time to plant a tree was 20 years ago. The second best time is now.” The same principle applies to investing — time in the market beats timing the market.
Once you decide how much you can afford to invest, the priority should be consistency. The most effective way I’ve personally found to remain consistent is using dollar-cost averaging. When you dollar-cost average, you decide on a set amount to invest and then determine a schedule to put that money in the market.
It could be every Monday, every other Wednesday, every first Friday, or whatever works best for your situation. The more important part is making sure you stick to your schedule no matter what. It doesn’t matter if stock prices are up, down, or flat; your job is to stick to your schedule.
In addition to keeping you consistent, dollar-cost averaging is meant to reduce the impact of volatility on your investments. At some points, you’ll be investing when prices are high, just as you’ll invest when they’re low. The goal is to remove the emotions from investing and trust it’ll even out over the long haul.
There’s no need to overcomplicate the decision
Sometimes, an investing decision comes down to wondering if, a decade or so from now, you will look back and be glad you made an investment when you did. In the case of the S&P 500, it’s historically been a yes for most investors.
The S&P 500 contains some of the most important companies to the U.S. and world economies. There’s a reason investors and economists often use it to gauge the health of the U.S. economy and as the benchmark of the stock market overall. That doesn’t make it foolproof or guarantee success, but its history of reliable long-term growth speaks for itself.
Investors are more likely to benefit from stock market growth by focusing on consistency instead of trying to time the market, as missing even a few of the market’s best days can significantly lower returns.
Stefon Walters has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.