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Stock market volatility has a lot of people wary of investing their hard-earned cash right now, but it’s still a great option for most people. If you’re investing for the long run and you’ve diversified your money rather than investing it in a handful of companies, the upsides significantly outweigh the risks.
If you need more convincing, the list of reasons to invest below might help. We’ll also take a look at who actually shouldn’t be investing right now.
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3 reasons to invest your money right now
Here are some of the best reasons to invest your money, rather than keeping it in a savings account or something similar.
1. You could grow your wealth more quickly
It’s true that you can lose money while investing, but over the long term, many investors make money. The S&P 500 — a well-known stock market index containing 500 of the largest companies in the United States — has a 10.7% compound average annual growth rate over the last 30 years. And that’s despite losses of up to 37% in some years.
Ups and downs are just part of investing, but these daily swings don’t mean that much in the long run. As long as you’re not buying or selling emotionally to try to score a deal or stop yourself from losing more, you’ll probably make money over the long term.
2. Money you leave in cash will lose value over time
Putting your money in a savings account keeps it safe from stock market swings, but you’ll steadily lose buying power over time. Even the best high-yield savings account annual percentage yields (APYs) can’t match inflation. So even though your money is growing, the cost of goods is growing faster.
If you’re trying to save for retirement, it’s virtually impossible to get there while leaving all your money in cash. The reason so many people invest for retirement is because their annual returns often beat inflation, so they’re able to grow their nest eggs much faster.
3. Investing can help you save on taxes if you use the right accounts
Retirement accounts offer tax advantages you won’t find with taxable brokerage accounts or savings accounts. Money you put into a tax-deferred retirement account reduces your taxable income for the year, though you must pay taxes on your contributions and earnings when you withdraw them. If you choose a Roth retirement account, you pay taxes on your contributions upfront, but you get tax-free withdrawals later.
This can also make it easier for you to achieve your long-term financial goals. If you choose not to invest your money, you’ll have to pay taxes on all of your income and any interest you earn every year.
2 reasons not to invest right now
Despite the many advantages of investing, you shouldn’t do it if either situation below applies to you.
1. You don’t have an emergency fund
Everyone needs an emergency fund to help cover unexpected costs without taking on debt. This should be your first financial priority if you don’t already have one. It’s up to you how much you want to set aside, but it’s generally accepted that you should keep a minimum of three months of living expenses at the ready.
You want to keep this money in a savings account because you never know when you’ll need to use it. If you invest your emergency fund and then need to tap it when all your stocks are down, you’ll have no choice but to sell at a loss. Keeping your emergency fund out of the stock market eliminates that risk.
2. You plan to spend your savings soon
You also don’t want to invest money you plan to spend within the next five to seven years, for the same reason. The stock market can be volatile, and you don’t want to be forced to sell your investments at a loss when you need your money. This is a greater risk when you’re investing for the short term compared to investing for the long term.
Keep short-term savings in a savings account as well, but throw your long-term savings into an investment account. If you’re worried about losing money, try to set up automatic contributions and avoid checking your portfolio more than a few times a year. Always keep the long-term growth potential of your investments at the forefront of your mind and try not to get too frazzled if they have a bad quarter or two.
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