Is Now the Time to Start Investing?

A woman sitting at a table with papers, using her laptop t o work on finances at home.

When it comes to being successful in the stock market, a well-timed investment can really pay off. But timing an investment is easier said than done—how you do it should depend not only on market conditions, but on your financial situation and tolerance for risk as well.

Jumping into investing now—while the ongoing COVID-19 pandemic sows uncertainty in the markets and the economy overall—should be done with care and only if you already have an established emergency fund and have paid down high interest debts such as credit cards. People with excess cash could capitalize on recent drops in value, while those uncertain about their income might want to conserve their funds.

If you want to start investing, read on to learn how to get started with the stock market and to see if the timing is right for you.

What Is Investing?

Investing is a term used to describe the process of purchasing an asset that you believe will grow in value over time. Theoretically, that asset could be anything from a baseball card to a home to individual shares of a company (stocks).

One of the most common investment strategies is buying and selling securities (stocks, bonds, mutual funds, etc.). It works like this: An investor buys shares of a security (like a stock) and holds them until they decide to sell, by which time those shares have hopefully increased in value.

For now, let's focus on investing as it refers specifically to the buying and selling of stocks and funds.

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Investment Trends and COVID-19

The stock market has periods of ups and downs. These fluctuations are commonly referred to as "bull" and "bear" markets. A bull market occurs when a market index (like the S&P 500) increases 20% or more over several months, and a bear market occurs when indexes decrease by at least that much.

In March, amid uncertainty surrounding the COVID-19 crisis, the Dow Jones Industrial Average—one of the major U.S. stock indexes—dropped over 20%, entering bear market territory for the first time in over a decade. This plunge caused a mixed reaction among investors around the world, with some ramping up their investments and others pulling back as they saw their portfolios drop in value.

But at a time when many Americans are turning away from investing, some are seeing an opportunity. According to a recent Experian survey of 1,000 people in the U.S., 14% of respondents with a household income of $100,000 to $150,000 said they planned to invest more in the stock market in the near future. Others planned to invest more in things other than stocks.

Consumer Plans to Invest During COVID-19
Income RangePlanning More Investment in Stock Market in Near FuturePlanning More Investment in Things Other Than Stocks in Near Future
$150K or more7% 9%
$100K to $150K14%7%
$50K to $100K9%6%
$50K or less7%5%

Source: Experian 2020 survey data

When it came to weighing risk after COVID-19, 1 in 3 consumers reported that they had no plans to change their investment risk level, according to the survey. Nearly everyone surveyed said they planned to make some type of investment once the pandemic was over.

These plans to invest—while more common among investors in higher income brackets—illustrate consumers' confidence that markets will recover.

When to Start Investing

It typically takes time to see a substantial (if any) return on investments—that's why starting early is so valuable. This commitment means you should be prepared for the money you invest to be tied up for some time. With that in mind, if you have limited savings, or are living paycheck to paycheck, investing might not be the best financial decision.

If you're wondering whether now is a good time to invest, answer the following questions to see if you're in the right place to get started.

  • Do you have enough money to cover essential expenses? While it may go without saying, if you are struggling to cover essential expenses—or think you may be in the near future—now might not be the best time to start investing. Again, investing will tie up your money for some time, so you should make sure your essential needs are covered before you begin new financial endeavors.
  • Do you have an emergency fund? Before you start investing, make sure you have a savings fund ready to cover emergencies. While you'll be able to access the money you've invested in the stock market at any time, doing so at an inopportune time—when the market has gone down since your initial investment, for example—can cause you to miss out on potential future earnings or even lose money. Emergency funds can be a lifesaver if you need quick cash to cover expenses. It's recommended to save three to six months' salary in your emergency fund.
  • Do you have debt? While the value of your investment could grow over time, it may not grow at a rate that outpaces the interest you are paying on your debt. For example, if your financial portfolio grows at a rate of 10% annually but you have a high balance on a credit card debt with a 15% annual percentage rate (APR), you'd be better off paying down your debt. From an investment perspective, in the short term, paying down your debt would actually save you money.

If you feel comfortable with your finances, you should begin putting money aside in an investment account as soon as possible. As you do this, start formulating your investment strategy, and make a plan for how you'll get started.

How to Start Investing

At one time, investing in the stock market meant working with a financial planner or stock broker. Now, online brokers, easy-to-use investment apps and company 401(k) plans simplify the process of investing.

No matter what platform you use to invest, you'll need to have a firm understanding of the different types of securities you can purchase. Here are some of the more common investments:

  • Stocks: Individual stocks are essentially small ownership stakes in publicly traded companies. You can buy multiple shares of a stock, and as each share rises in value, your ownership stake increases in value (or decreases, if the stock value goes down). The objective with individual stocks is to buy low and sell high. The process of seeing a return can take time, but can also happen in a matter of minutes if a company's situation changes.
  • Bonds: When you buy a bond, you're essentially giving a corporation or government agency a loan. In exchange, you'll earn interest on your bond investment. Bonds are typically issued for set periods of time, and you'll get your original investment back plus the interest that accrued over that time when you cash them in. Bonds are known to have lower rates of return, but are significantly less volatile than other investments.
  • Index and mutual funds: These investment instruments pool money from multiple investors and use the collective funds to invest in different types of securities. Index funds are a type of mutual fund tied to popular stock indexes, like the S&P 500, meaning the underlying securities in these funds closely mirror those found in the index they track. Other mutual funds are compiled of various stocks, bonds and other securities that are selected by the fund manager. The advantage of index and mutual funds is they allow you to diversify your investments without having to purchase and manage the individual securities in your portfolio.

Once you've determined what type of securities you want to buy, start thinking about the tools you can use to manage your investments. The easiest and often smartest way to start investing is through your company's 401(k) plan, if it has one. Many companies match a portion of the funds you invest in your account to encourage saving for your retirement, adding to your investment at no cost to you. You'll be offered a variety of funds from which to choose; if you're not sure which to pick, you can usually contact the company's fund advisor for advice.

If you're funding your 401(k) or other retirement vehicle and are looking for additional investment opportunities, you have several options:

  • Online brokerage accounts: These accounts give you total control over what you buy and sell and when. TD Ameritrade and E-Trade are examples of this type of investment vehicle.
  • Robo-advisor investing applications: Companies such as Acorns and Robinhood offer automated investing solutions based on your financial situation and goals. They typically charge less than human financial advisors and tend to invest in index funds, making them a good choice for entry-level investors. Keep in mind that robo-advisors do not offer financial planning.
  • Traditional financial advisors: An in-person financial advisor can not only offer you advice on where to put your investments, but can answer any questions you may have. You'll pay more for this personal touch—and may need a minimum amount to invest before they'll even take you on as a client—but financial advisors can offer you more in-depth financial advice and guidance than other options.

Each of these options has its own advantages, and you should choose one that fits with your dedication to managing your portfolio and your level of experience. As always, if you feel uncertain about how to get started and what strategy you should use, contact a financial professional such as a certified financial planner for help.