Ask anyone who’s been investing for any period of time ‘When is a good time to invest?’ and the most likely answer would be yesterday. If you ask them if now is a good time to invest then they would probably say yes without hesitation. We’ll get into why this is at the end of this article. Of course asking ‘is now a good time to invest?’ vs ‘is now a good time for me to invest?’ will result in very different answers.
Is Investing Right For You?
Lets look at some caveats which may effect whether investing is right for your current situation.
Time horizon
For investing to work well it needs to benefit from compounding. You see the huge benefits of compounding once you start reaching the 25/30 years investing. This means investing works best for long term goals such as retirement & financial freedom.
If you know you need the money within the next few years investing probably isn’t for you. This increases the risk of making a loss and if you need that money say for a house deposit or wedding, investing probably isn’t the best solution as you could see a loss.
Recommended Reading: The compounding effect – the key to exponential money growth.
Emergency fund
As we stated above this money needs to be locked away for the long term in order to reap the rewards. If you have to take money out every couple months for emergencies then its not helping you in any way. Many people therefore recommend saving up a 3-6 month emergency fund before you start investing. This protects you and your investments from any mishaps. Personally I think this may not work for all people but is a good general rule of thumb. This really depends on your own appetite for risk and current circumstances.
What I did was have one month emergency fund before starting to invest and then I built both pots up simultaneously. Once I my hit emergency fund goal I could then increase my investment contributions. As I’m young this method worked for me as I just wanted to start investing and see if I liked it. If you have more responsibilities with people relying on you for income then you may feel safer waiting to build up 3-6 months first. In short make the decision that feels right for you.
Recommended Reading: Emergency Fund: What is it and how to create one.
Do you meet this criteria?
The key thing is to be honest with yourself with your current financial situation. This should be personal and just because you see others doing it doesn’t mean its the best thing for you. If you are happy with locking your money away for the long term and have a cash buffer that’s suitable for you, investing could be a great choice. Now you’ve decided investing might be for you, lets look at when the best time to invest is.
Can you time the market?
The optimal time to invest
There is always an optimal time to invest, the issue is this can only be known in hindsight. Take any major crash in the past 100 years and there was always a day when the markets fell to their lowest. Nobody knew this at the time, in fact with all the dramatic news coverage you would likely be thinking it would just keep falling. Its only now looking back at the data that we know that during the pandemic around the 16th of March 2020 would have been an optimal time to invest.
As we only know this information in hindsight it makes it almost impossible to invest at the lowest point consistently. In fact the only real way to ensure you don’t miss a dip would be to invest every dingle day. This isn’t really necessary and will probably make for a worse return as I will explain next.
Waiting out the market
On the other side of things it seems like common sense that when markets are hitting new all time highs it would be a bad time to invest. This is a fallacy. The thing is you still don’t know whether it will just keep continuing to rise. In fact, if we take the S&P 500, the average number of new all time highs in a single year is 18. In 2024 it reached a new high 57 times. This equated to around a 25% gain in value. If you had seen that first new high of 2024 and thought I’m going to wait out for a crash, you would have missed out on a lot of gains. This is the key point, new all time highs happen every year. More often than not they will continue to rise after. By the time there is a crash, its lowest point may still be higher than it was when you first decided not to invest.
As we’ve already discussed actually investing at the lowest price is extremely difficult, especially if you are doing this as a lump sum. This idea of buying the dips and waiting out the highs, sounds logical but in reality isn’t feasible and is actually more likely to produce a lower return than a more consistent approach. What is a better way to approach investing then?
Recommended Reading: Investing for beginners – the simple 2025 investing strategy.
The Passive Approach
For new and old investors alike this is a proven method that works. When you get paid, siphon off a set percentage every month to be invested. I prefer a percentage to a nominal figure as it will then grow over time as your wages increase. Hopefully your wages will rise with inflation and so will your deposits too. If you get a promotion or a new job your deposits will adjust accordingly also making it nice and simple to know what to invest every month.
By paying in every month you have peace of mind that you are continuously contributing towards a future goal without the stress of having to decide if now is the optimal time to invest. You know it will average out in the long run to give a decent return. This additional time saved could be utilised in a number of more productive ways such as increasing your income in the first place. This will go a lot further than trying to eek out a couple extra percentage points on an already low number.
Recommended Reading: How a diversified investment portfolio can benefit you.
What are you investing in?
Now for the elephant in the room, what you invest in does make a big difference as to whether it is a good time to invest. For the passive approach to work you need a fund that requires minimal adjustments on your part. It should be well diversified so that you are able to cover all eventualities. One of the best ways to do this is to invest into a global index fund which I have discussed on this blog before. You don’t have to think as much about the specific companies you are investing in nor do you have the stress of having to rebalance your portfolio as often.
If you invest into individual companies the risk level can be increased and more emphasis will be on timing your selling and buying to gain a good return. This is extremely difficult for beginners and experts a like. By coupling your diversified investment choices with a long timeline it almost makes it irrelevant what the current price is as its more likely to be higher in 20-30 years from now. This makes it easier to decide whether investing now is a good option.
Recommended Reading: Passive vs Active: How easy should investing your money be?
Why now is the best time to invest
With all this being said I hope you have come to a similar conclusion that now is a good time to invest. This is of course not down to whether the markets are currently up or down but rather that now gives you the most time in the market. This gives you better probability of producing a substantial gain in the long run. The biggest winners in investing as with most things in life are those who remain consistent. That’s when the real money is made.
Disclaimer
All information is not financial advice and is purely meant for educational purposes only. Investing involves the risk of loss of capital as well as its gain. Any investments mentioned on this website are meant as examples not specific recommendations. Always do your own research and/or gain the help of a financial advisor.
