Market volatility during the Trump era has made investing in stocks seem daunting. Despite short-term price fluctuations, patiently holding investments over the long term has historically been rewarding. This article is part four of a six-part series by BI on navigating major life decisions amidst significant changes.
Financial advisors often respond to the question of whether it’s a good time to buy stocks with “It depends,” followed by inquiries about risk tolerance and investment timeline. If you have a low risk tolerance or need the money in the near future, it may not be the best time to buy. However, if you have time on your side and can handle market fluctuations, historical data suggests that it’s typically a good time to invest.
Market reactions to President Trump’s tariff proposals have caused significant fluctuations in the equity-investing landscape. Recent tariff cuts between the US and China have contributed to a positive market response, with major US indexes surging over 3% in a single day. Despite uncertainties, history indicates that having a longer-term investment horizon can be advantageous.
Jeff Schulze, head of economic and market strategy at ClearBridge Investments, highlights that the S&P 500 has historically delivered positive returns in the year following a 10% drawdown, especially in the absence of a recession. However, high valuations and trade uncertainties raise concerns about potential market downturns.
While market cycles vary, historical data suggests that stocks tend to recover and provide strong returns over extended periods. Efforts to time the market may be less effective than focusing on long-term investment strategies. Despite challenges, stocks have shown resilience and growth over time, emphasizing the importance of a well-informed and patient approach to investing.
There’s no perfect way to time the bottom of the market. One method to reduce this risk is through dollar-cost averaging. This strategy involves investing a fixed amount at regular intervals, such as every Friday or the first of each month. For instance, if you have $10,000, you could invest $500 over 20 weeks or months. By doing this, you purchase stocks both when the market is up and when it is down. While you may miss out on short-term gains, you also benefit from better buying opportunities if the market declines further in the future. Regardless of your approach to entering the market, historical data suggests that your returns are likely to be positive over the long term. Warren Buffett has advised being prepared for potential losses of 50% or more when investing in stocks. This means having the resilience to withstand market volatility in the short term, with a focus on long-term goals. If you can remain disciplined and focused on your long-term objectives, then it may be a good time to consider investing.
