Ask a Trainer: Is it Still Worth it to Invest in the Stock Market and Cryptos?
One of the most common questions we get when the stock market is going up and down and loopy-loop like a rollercoaster is: Should I hold off on investing in the stock market until things settle down?
There are generally two schools of thought:
You can’t time the market, so don’t even try. Therefore, yes you should invest now without regard to any other factors.
You can time the market and find inefficiencies that you can then exploit to make lots of money.
At the Financial Gym, though, we’d encourage you to ask yourself another question before we give you an answer: Do you have a full emergency fund? That is, three-to-six months worth of expenses in cash.
If you do have an emergency fund, then yes, it’s still worth it to invest in the stock market and/or in cryptocurrencies.
But why?
The stock market is still the best hedge against inflation, which is a fancy way of saying if you invest in the stock market long-term, your gains on those stocks will be greater than the rise in inflation.
Right now, it might not seem that way because your portfolio may be down 20% and at the same time, you see groceries and gas rising. (Currently, inflation is around 8%.)
But we’ll encourage you to stay the course and trust how your portfolio is invested (assuming that it’s invested appropriately according to your goals and timeline). The people whose accounts are getting hit the hardest right now are those who have 90% or more of their retirement or investment in stocks. But if those accounts aren’t even going to be touched for seven years or more, then this year’s bumpy ride will be a distant memory when these folks sell their stocks for cash.
In the last year, the S&P 500 (a list of the 500 largest U.S. companies on the stock market) has been down 9%. But if you look back to its performance the last five years, it’s up about 61%, far outpacing inflation.
As risky as stocks may seem, historically, they are a safer bet than letting your money sit in cash if you’re looking to grow your wealth.
If someone told you today that if you invested in the S&P 500 and that your account would be up 60% in five years, would you do it?
What about Cryptos?
Stocks look like they’re having a banner year compared to cryptocurrencies. Both Bitcoin and Ethereum are down about 36% in the last year, according to CoinDesk.com.
Yikes! The million dollar question becomes: Is this a good time to buy crypto? If crypto is going to recover and each of the coins goes back to its all-time high or higher, then yes, this is a huge opportunity! But if crypto falls by the wayside and never recovers, then you’re going to lose money.
The Financial Gym has always recommended putting no more than 5% of your assets in crypto. That way, if you lose all the money you invest there, you’ve still got 95% of your assets in the bank.
That said, let’s look back on the last 5 years for cryptos:
Bitcoin is up 743.21%
Ethereum is up about 319%
For both stocks and cryptos, even with a major downfall like the one we’re experiencing, you’d still be winning when you look at this from a bigger perspective. We’re so lucky to have the benefit of data that tells us it pays off to stay put.