Is This Really the Right Time to Invest in the Stock Market?
Nobody likes losing money; that goes against the whole purpose of investing. With the stock market’s rough start to 2022, many people may wonder if now is the right time to invest. Simply put, the answer is yes.
Panic selling isn’t the answer
One of the worst things you can do while stock prices are declining is panic and sell your investments. Your focus should be on the long term, and getting rid of your investments can end up hurting you more down the road than it helps in the short term. When stock prices drop, those losses are unrealized, meaning they only exist on paper. You only lose money (or minimize your gains) whenever you decide to sell.
When you panic sell, not only are those shares that you didn’t give time to possibly rebound, but you’ll also spark a tax bill once you sell — possibly adding insult to injury. If you’ve held your stocks for a year or longer, you’ll pay a capital gains rate when you sell them for profit. If you held them for less than a year, you’ll pay your regular income tax rate.
Imagine if you bought 100 shares of Netflix (NFLX 2.90%) for $25 each in December 2010 and decided to sell at $180 each after witnessing its decline from nearly $700 per share. You would have made $15,500 in capital gains over the past 11+ years, but you would also owe taxes on that amount. At the common 15% capital gains rate, that’s $2,325 you’d owe in taxes.
A five-figure profit isn’t bad by any means, but if Netflix manages to get back even half of the value it’s lost in 2022, that’s tens of thousands of dollars in value you would’ve missed out on. Of course, there’s no guarantee that will actually happen, but if you’re a long-term investor, you have time on your side for them to potentially weather the storm.
Just remain consistent
If you put together some pillars of investing, consistency has to be one of them. Wealth is rarely, if ever, created overnight in the stock market. It usually takes time and consistent investing, regardless of what may be going on in the short term in the market. Instead of stopping your investing during bear markets, consider them a potential opportunity.
One important thing investors should be aware of is their cost basis, which tells you the per-share price you’ve paid for a particular stock. Depending on when you bought your shares, down periods in the market can be a chance to buy some of your favorite investments for cheaper prices and lower your cost basis — which can increase your profits when you eventually sell in the future.
It may be hard to force yourself to continue your investing as you see prices drop, but you never want that to deter you. If you use dollar-cost averaging, you’ll set a specific amount to invest at specific intervals, regardless of how your stocks are doing at the time. This is one of the best ways to prevent yourself from trying to time the market (waiting until stocks hit their “bottom” to resume investing) and remain consistent and focused on your long-term goals.