In case you missed the memo, the U.S. economy is officially in a recession, and with COVID-19 surges popping up across the country, our hopes for a quick recovery are increasingly being dashed. But despite shaky economic (and health) conditions, it still pays to put money into the stock market if you’ve been hesitant to do so thus far. Here are a few reasons.
1. Time is your greatest weapon
When it comes to growing wealth, time is really the most effective weapon in your personal arsenal. The longer an investment window you give yourself, the more you’ll be able to benefit from compounded returns. Imagine you amass a $10,000 stock portfolio that manages to generate an average yearly 7% return (which is a few percentage points below the market’s average). If you keep that portfolio invested for 20 years, it will grow to $37,700. But if you wait five years to start investing, thereby giving that same amount of money just 15 years to grow, you’ll end up with $27,600 instead.
2. Inflation remains a threat
It’s important to invest the money you set aside for retirement rather than just let it sit in cash. The reason? Over time, inflation causes the cost of goods and services to rise so that a dollar today won’t have the same buying power in the future. If you don’t invest, you’ll risk struggling financially later in life when your savings don’t hold up against the cost of living.
3. There are deals to be had
The scary thing about investing during a recession is that the market might move drastically from one day to the next. But while volatility is often regarded as a bad thing, it can actually be a good thing, because it opens the door to opportunity. During a recession, you might be able to score some quality stocks at a discount, which means you stand to make even more money by holding them over a long period of time.
4. Recessions don’t last forever
It’s hard to part with money at a time when the economic outlook is bleak and so many people are grappling with financial insecurity. But remember, this current crisis will eventually pass, and there will come a point when the jobless rate declines, small businesses start thriving, and economic conditions are generally positive. As long as you first arm yourself with a solid emergency fund — enough money to cover about six months’ worth of essential living expenses — you should feel confident investing your excess cash despite the fact that a lot of the news you’ll be reading for a while might be bleak.
The sooner you start investing, the greater your chances of meeting your financial goals. It isn’t easy to get past the hesitations you might be harboring, especially at a time when there’s so much uncertainty. But once you begin investing, you could get peace of mind knowing that you’re doing your part to improve your personal financial picture for the long run.