The answer to this question depends on many personal factors including your age, your current portfolio holdings, your investment risk tolerance and financial goals, and how soon you might need to get back money from your invested assets. The younger you are, the more time is on your side to ride out the effects of stock market volatility.
A strong case for buying stocks can certainly be made. Historically, common stocks have outperformed all other investments over time periods of 15 to 20 years or longer. According to the Chicago investment research firm Ibbotson Associates, the average annual return on U.S. large company stocks from 1926 to through 2015 was 10% for large company stocks and 12% for small company stocks versus 5.6% for long-term government bonds, and 3.4% for U.S. Treasury bills. At a 10% annual return, an investment will double in value every 7.2 years according to The Rule of 72 (72 divided by 10 = 7.2).
If you can invest on a long-term, committed basis (e.g., $50 per paycheck over 30 years), you can generally expect impressive growth through stock market investing over time. You need to expect market declines, however, and the very real possibility that you can lose money. Successful investors generally hang tough and don’t panic and sell when market downturns occur.
If you have well defined financial goals, adequate insurance and cash reserves, no or low consumer debt, and a moderate or aggressive risk tolerance, this may be an excellent time for you to buy stocks regardless of how the stock market is performing.
For more information about stocks and other equity (ownership) investments, refer to: http://www.extension.org/pages/10939/investing-unit-4:-ownership-investments.
For a personalized investment risk tolerance quiz, refer to http://njaes.rutgers.edu/money/riskquiz/
We would like your feedback on this Personal Finance Frequently Asked Question.