Buzz
If you ask a financial advisor about the 'optimal' time to invest, their response is likely to be: yesterday. But if you missed that window, the next best option is today.
This is because compounding and time spent in the market (historically, the stock market tends to rise over time, despite occasional dips) are key factors for wealth-building, according to Ellevest, a roboadvisor. The longer your money stays in the market, the more opportunity it has to grow (and recover from those occasional setbacks).
However, there are certain situations when it might be wiser to focus your funds elsewhere: “When you’re still working on getting your financial fundamentals in place,” advises Ellevest.
When you need to set aside an emergency fund
If you don’t have emergency funds set aside, that should be your top priority. “That security is important because financial emergencies are practically guaranteed to happen sometimes,” writes Ellevest. Additionally, investments aren’t easily accessible, meaning you can’t use them to cover urgent costs without facing penalties or taxes (unless you're withdrawing contributions to a Roth).
If you’re worried about losing your job or if another major life event is coming that could be costly, it may be a good idea to slightly reduce your auto-contributions to build your savings if you haven’t done so already. You don't want to be caught without savings if you lose your job and don’t have an immediate replacement.
When you need to pay off debt
Paying off debt is often one of the most difficult financial goals to balance with investing. For instance, if you have significant student loan debt after graduation, you might consider it your top priority, while thinking investing should take a backseat. It’s understandable, but doing so may cause you to miss out on years of growth.
Typically, the advice is to pay off debt and invest simultaneously, with little further direction. Ellevest offers a slightly different perspective. “Pay off debt with an interest rate higher than five percent,” it suggests, “as historically, this has cost you more than you would earn by investing.”
If you have credit card debt, for example, it’s smarter to focus on paying that off before funneling all your money into investing. Paying down your debt will give you a higher return (since your debt compounds as well).
We’ve got plenty of advice on how to do that. And if you're just starting with investing, read this.
