Stock Market Turbulence: How to Invest Wisely and Safely Right Now

The S&P 500 faced headwinds on occasion over the past three years, but it still offered investors a solid path upward, gaining 78%. This happened amid optimism about the growth potential of artificial intelligence (AI) stocks as well as optimism about a lower interest rate environment.

And this picture was favorable for the broader market: AI could help many companies beyond the tech industry become more efficient and, in turn, lower costs. And lower interest rates equal more favorable borrowing conditions for companies and more buying power for individuals. All of this helped enthusiasm spread across industries and led to broader market gains.

But in recent weeks, the market has become a turbulent place. AI companies have reported positive trends, from soaring revenue to high demand for their products and services. At the same time, though, investors have worried about a variety of factors, from the impact of AI on certain companies to the conflict in Iran. And that's led to a series of ups and downs for the S&P 500.

Should you hold off on buying stocks amid this stock market turbulence? Not necessarily. Here's how to invest wisely and safely in this environment.

Image source: Getty Images.

Recent sources of turmoil

First, let's consider the problems that have weighed on the market in recent times. AI has led to various concerns. Some investors have worried about the fast pace of AI spending, with the idea that the revenue opportunity will fall short of expectations. Another concern has been the lofty valuations of certain growth stocks -- any disappointment could result in prices crashing. Finally, investors have questioned whether AI may replace the functions of some software, and that's hurt software stocks in recent times.

Meanwhile, the geopolitical backdrop has prompted concern, too, as conflict between the U.S. and Iran has escalated. As a result, the S&P 500 has swung from gains to losses, and as of the writing of this article, the index is little changed for the year.

So, should you really start to invest or add to your holdings at a time like this? The answer is: Any time is the right time to invest as long as you do the following three things:

• Buy shares of quality companies
• Pay a reasonable price
• Hold on for the long term

The danger of a short-term view

If you check off all three of these boxes, it's very likely you'll score an investment win. During times of uncertainty, it's tempting to halt investing as it can be intimidating to see stocks falling -- or going through a series of ups and downs over just a few days. And it's very true that short-term investing in this sort of environment is risky. Even the highest quality stock could drop during tough times, leaving you with a loss if you aim to buy and sell over a period of days or weeks.

But if you broaden your investing horizon out to a period of at least five years, investing gets a lot easier -- and your chances of losing drop dramatically. In fact, stock market data from 1972 through 2023, cited by JPMorgan Personal Investing, show the historical probability of a loss dropping from nearly 50% if you invest for less than a year to about 12% if you hold on for five years. And that decreases to less than 5% if you stick with your investment for 11 years or more.

Which stocks should you buy?

So, with these points in mind, what should you look for today? It's key to consider companies that are strong enough to manage tough times and then go on to grow in the years ahead. You may favor well-established players in any field, from a consumer goods giant like Costco to a tech player such as Alphabet. You also might consider getting in on pharmaceutical companies, as patients always need their treatments regardless of the economic backdrop. And dividend stocks make wise investments during difficult times, as they guarantee you passive income no matter what the overall market is doing.

Finally, consider your relationship with risk before making any moves. If you're an aggressive investor, you might choose to go for growth stocks that have slipped recently; if you're a cautious investor, you might favor pharma and dividend players.

In any case, when you focus on the long term, you can indeed invest wisely during stock market turbulence -- and sleep easier too.

JPMorgan Chase is an advertising partner of Motley Fool Money. Adria Cimino has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Alphabet, Costco Wholesale, and JPMorgan Chase. The Motley Fool has a disclosure policy.