Investing During Uncertain Times: Beginner Guide
Investing when markets feel unstable is uncomfortable. But history shows that investing during downturns produces some of the best long-term returns. Here is how to stay rational when the news is screaming.
Don't have time? Here's what you need to know:
- 1Every generation thinks they are investing in uniquely dangerous times -- the market has recovered from every crisis in history
- 2Even investing at the worst possible time each year still massively outperforms sitting in cash over 20 years
- 3If you are nervous about a lump sum, split it into 3-4 monthly installments, but get it invested within a few months
- 4The urge to "do something" during market volatility is itself the sign that you should do nothing and stick to your plan
Every Era Feels Like the Worst Time to Invest
In 2008, people thought the financial system was collapsing. In 2020, a global pandemic shut down the economy. In 2022, inflation hit 9% and stocks dropped 25%. Every single time, people said "this time is different" and "I will invest when things calm down." And every single time, the market recovered and rewarded those who stayed invested.
The S&P 500 has returned an average of ~10% annually since 1926, through the Great Depression, World War II, the dot-com bust, 2008, and COVID. Not despite those crises -- through them. The market prices in fear quickly and recovers over time.
What Happens If You Invest at the Absolute Worst Time
A Schwab study compared five investment strategies: investing at the market's peak each year, investing at the bottom each year, investing on January 1 each year, dollar-cost averaging monthly, and keeping everything in cash. Over 20 years, perfect timing barely beat consistent investing, and both crushed staying in cash.
Even the worst-case timing investor who bought at the peak every single year still made money over any 20-year period in U.S. market history. Time in the market matters far more than timing the market.
| Strategy (1993-2012, $2,000/year) | Ending Balance |
|---|---|
| Perfect timing (bought at each year's low) | $87,004 |
| Invested immediately each January | $81,650 |
| Dollar-cost averaged monthly | $79,510 |
| Worst timing (bought at each year's high) | $72,487 |
| Stayed in cash (Treasury bills) | $51,291 |
A Practical Plan for Investing When You Are Nervous
If you have a lump sum and feel too anxious to invest it all at once, split it into 3-4 equal parts and invest one part each month. This is not optimal mathematically (lump sum wins ~66% of the time), but it is a reasonable compromise that gets you invested within a few months.
If you are already investing regularly from each paycheck, keep going. Do not pause your automatic investments because the news is bad. In fact, buying during a downturn means you are getting stocks on sale. Your future self will thank you.
Tip: Uninstall stock tracking apps from your phone during volatile periods. Set a rule: check your portfolio no more than once a month. If you would not sell your house because Zillow shows a 10% dip, do not sell your ETFs because they dipped 10%.
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What Not to Do During Volatile Markets
Do not sell everything and go to cash. Market timing requires being right twice: when to sell AND when to buy back in. Almost nobody gets both right. Do not drastically change your asset allocation. If you were comfortable with 80% stocks last month, you should be comfortable with it this month too -- the same risks existed before the headlines appeared.
Do not try to pick "safe" individual stocks during a downturn. Broad index ETFs like VTI own thousands of companies. Some will fail, but the index will recover. Individual stocks might not. And do not take advice from people who are panicking. Calm, boring, disciplined investing outperforms exciting, reactive investing every time.
Important: The worst investing decisions happen when emotions are highest. If you feel an urgent need to do something with your portfolio, that urgency itself is the signal to do nothing.
Frequently Asked Questions
Should I stop investing during a recession?
No. Recessions are when stocks are cheapest. If you invested $10,000 in the S&P 500 at the bottom of the 2008 financial crisis, it would be worth over $70,000 by 2024. Continuing to invest during recessions is one of the most powerful wealth-building strategies.
What if the market drops right after I invest a large amount?
It will feel bad. That is normal. But if your time horizon is 10+ years, a short-term drop is irrelevant. Even investing at the absolute peak in 2007 (right before the worst crash since the Depression) would have turned $10,000 into $40,000+ by 2024.
Is now a good time to invest?
If you have money to invest and a time horizon of 5+ years, yes. This answer has been correct every single year for the past century. The market might drop after you invest, and it might also go up 20%. Nobody knows. What we do know is that waiting in cash has never been the winning long-term strategy.
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Alex Harrington
CFA Level II Candidate, Finance & Economics
Alex Harrington is an independent ETF researcher and personal finance writer with over 8 years of experience analyzing exchange-traded funds. A CFA Level II candidate with a background in economics, Alex has reviewed 800+ ETFs and helped thousands of beginners build their first investment portfolios through clear, jargon-free education.
This content is for educational purposes only and does not constitute financial advice. Past performance does not guarantee future results. Consult a licensed financial advisor before making investment decisions.