After the market tanked in 2022, it came roaring back last year. The S&P 500 soared 24% in 2023, and it started to hit fresh, all-time highs throughout the month of January this year.
Besides renewed investor optimism, we are still in an uncertain economic environment, with a potential recession on the horizon. So, investors might be wondering if now is still a good time to invest in the stock market.
Here are three questions you need to ask yourself before making a decision.
Is there extra cash lying around?
I believe it's critical to take a step back before you even think about investing in the stock market. The first step should be to take care of your personal financial situation, which might be something that many people are inclined to overlook.
Paying off high-interest debt, like credit cards or personal loans, should be your top priority. These products typically carry extremely high interest rates, at least more than what you could expect to earn in the stock market. Getting rid of this type of debt can also bump up your credit score.
The next step is to put some money aside in a savings account. This so-called emergency fund should be able to cover at least three to six months of expenses, and maybe more, depending on your situation. Having this financial cushion provides a valuable safety net should a negative event happen, like a job loss. The peace of mind it provides is worth it.
Image source: Getty Images.
Will I avoid the temptation of trying to time the market?
Seeing the S&P 500 hit new all-time highs seemingly every day can be discouraging for those who have been on the sidelines and have missed the rally. A rational approach might be to wait until the market takes a breather and there is a more attractive entry valuation.
However, there's one glaring issue with this strategy. No one can predict what is going to happen with the stock market in the near term with any sort of consistent accuracy. There are an unlimited number of variables impacting the markets and the economy at any given moment. But it's encouraging that if your time horizon spans many decades, correctly timing the right entry point doesn't matter.
In other words, time in the market is significantly more important than timing the market. And just as important, I'd recommend investors consider dollar-cost averaging. This encourages forming a critical habit like regularly saving and investing.
Can I find attractive investment opportunities?
You've made it this far. Your personal finances are in order, and you have committed to avoid trying to time the market. The next question to figure out is if there are solid investment opportunities out there today.
The popular approach, one that even Warren Buffett raves about, is to go the passive route. There are numerous S&P 500 index funds and exchange-traded funds (ETFs) that provide a low-cost and diversified way to gain exposure to some of the largest and most profitable enterprises. This method has historically produced annual returns of 10% on average.
If you think you have the ability and time to successfully research individual stocks, then it's smart to look at high-quality businesses that possess economic moats and growth potential.
I believe both Etsy and PayPal fit the description. On a forward price-to-earnings (P/E) basis, their valuations are dirt cheap. They both benefit from powerful network effects. Etsy is riding the e-commerce trend, while PayPal gains from the ongoing war on cash. These stocks have the potential to reward investors over the long term.
Taking the time to assess your responses to the three questions above will provide more clarity as to what your next course of action should be.
Neil Patel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Etsy and PayPal. The Motley Fool recommends the following options: short March 2024 $67.50 calls on PayPal. The Motley Fool has a disclosure policy.
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Is now a good time to enter the stock market? ›
The answer if you just starting out is an unequivocal yes. Even though I am both by nature and training a contrarian trader, for whom buying at what could well be the top of a move feels inherently wrong, that isn't a factor when it comes to long-term regular investing.
What are the 10 stocks The Motley Fool recommends? ›
The Motley Fool has positions in and recommends Alphabet, Amazon, Chewy, Fiverr International, Fortinet, Nvidia, PayPal, Salesforce, and Uber Technologies.
Is it worth it to invest in stocks right now? ›
Is now a good time to invest in stocks? If you're looking to invest for your future -- five, 10, or 40 years from now -- now is as good a time as ever to buy stocks. Despite ongoing recession fears, it's important to remember the market is forward-looking. Stock values are based on future expected earnings.
Who gives the best stock advice? ›
Top 5 trusted stock market advisors in India
- Best Stock Advisory.
- CapitalVia Global Research Limited.
- Research and Ranking.
- AGM Investment.
- HMA Trading.
"Double down buy alerts" from The Motley Fool signal strong confidence in a stock, urging investors to increase their holdings.
Should I pull my money out of the stock market? ›
Key Takeaways. While holding or moving to cash might feel good mentally and help avoid short-term stock market volatility, it is unlikely to be wise over the long term. Once you cash out a stock that's dropped in price, you move from a paper loss to an actual loss.
Is now a bad time to invest in the stock market? ›
Based on the stock market's historic performance, there's never necessarily a bad time to buy -- as long as you keep a long-term outlook. The market can be volatile in the short term (even in strong economic times), but it has a perfect track record of seeing positive returns over many years.
At what age should you get out of the stock market? ›
There are no set ages to get into or to get out of the stock market. While older clients may want to reduce their investing risk as they age, this doesn't necessarily mean they should be totally out of the stock market.
What is The Motley Fool's top ten stocks in 2024? ›
The top 10 stocks to buy in April 2024
- CrowdStrike (CRWD 3.63%), $68 billion.
- PayPal (PYPL 1.96%), $66 billion.
- MercadoLibre (MELI 1.96%), $84 billion.
- Airbnb (ABNB 2.77%), $88 billion.
- Shopify (SHOP 4.9%), $105 billion.
- Intuitive Surgical (ISRG 2.21%), $128 billion.
- Walt Disney (DIS 1.54%), $165 billion.
2024's 10 Best-Performing Stocks
| Stock | 2024 return through March 31 |
|---|
| MicroStrategy Inc. (MSTR) | 169.9% |
| SoundHound AI Inc. (SOUN) | 177.8% |
| Vera Therapeutics Inc. (VERA) | 180.4% |
| Avidity Biosciences Inc. (RNA) | 182% |
6 more rowsApr 1, 2024
Amazon (AMZN): When it's all said and done, AMZN stock will hold a large market share of the generative AI market. Netflix (NFLX): Operating margin is expected to expand by 520 bps in Q1 FY24 for the streamer. Spotify (SPOT): The streaming music company anticipates 16 million net new MAUs in the first quarter of 2024.
Should I stop investing right now? ›
While it's generally safe to invest at any time (even during bear markets), there are a couple of situations where it could be risky. When you invest, it's best to keep your money in the market for at least several years -- if not decades.
What is the best investment in 2024? ›
11 best investments right now
- High-yield savings accounts.
- Certificates of deposit (CDs)
- Bonds.
- Money market funds.
- Mutual funds.
- Index Funds.
- Exchange-traded funds.
- Stocks.
The 9 Best Stocks To Buy Now
| Company (Ticker) | Forward P/E Ratio |
|---|
| Alphabet, Inc. (GOOG, GOOGL) | 22.1 |
| Citigroup, Inc. (C) | 8.4 |
| Fidelity National Information Services, Inc. (FIS) | 15.3 |
| Intuitive Surgical, Inc. (ISRG) | 60.9 |
5 more rowsApr 8, 2024
Mondays and Fridays tend to be good days to trade stocks, while the middle of the week is less volatile. Historically, April, October, and November have been the best months to buy stocks, while September has shown the worst performance.
Is the stock market expected to go up? ›
The chief U.S. equity strategist said he anticipates inflation will eventually move lower this year, and interest rates will come down from their highs, helping to drive earnings growth. “Our forecast is that [the] market rises slowly in line with expectations for earnings,” Kostin said.
Is the stock market expected to go up in 2024? ›
The S&P 500 generated an impressive 26.29% total return in 2023, rebounding from an 18.11% setback in 2022. Heading into 2024, investors are optimistic the same macroeconomic tailwinds that fueled the stock market's 2023 rally will propel the S&P 500 to new all-time highs in 2024.
What is the stock market outlook for 2024? ›
The US stock market enjoyed a strong first quarter in 2024, advancing 10%. But inflation was stickier than some expected. In fact, the March CPI number that came out this morning was hotter than expected, too. And that's leading many to question when the Federal Reserve will begin cutting interest rates.
