Should You Invest in the S&P 500 Right Now or Wait? History Offers a Clear Answer.

The S&P 500 (SNPINDEX: ^GSPC) has soared higher over the past few months, putting the famous stock market index up 18% over the past year. At approximately 20.4 times expected earnings, the S&P 500 has become notably more expensive than its 30-year average of 17.2. It's a legitimate cause for concern; the price you pay for stocks always matters.

However, it's not as simple as avoiding the stock market until prices come down. Expensive markets don't always fall. Meanwhile, trading in and out requires constantly guessing correctly about something that nobody can predict: what the market might actually do next. History shows that investors are better off simply investing as much as possible in the S&P 500 for as long as possible, riding the volatility as it comes.

The proof is in the pudding

In 2023, Vanguard published a study that used historical and simulated stock market data to compare different investment strategies. It found that 68% of the time, someone who invested a lump sum outperformed someone who spread that investment out over time, a strategy known as dollar-cost averaging. Even though dollar-cost averaging can be a great method for investing in individual companies, the broader market tends to go up more often than it goes down.

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In other words, history shows that there's an opportunity cost in withholding your money from the stock market. Unfortunately, people have missed out on the generational wealth the S&P 500 has created over the decade following the Great Recession in 2007-2009 because they sold, wanted to buy back in at the lowest possible price, and ultimately waited years on the sidelines after they missed the bottom.

Volatility makes timing the market almost impossible

Many investors also fail to realize that volatility works in both directions. A recent paper from J.P. Morgan Asset Management found that the S&P 500 has experienced an average intra-year drop of 14.2% from 1980 to mid-2026. So, if you hold a popular index fund, like the Vanguard S&P 500 ETF or State Street SPDR S&P 500 ETF Trust, it's going to fall from its high quite often. Ironically, the S&P 500 produced positive annual returns in 35 of those 46 years.

Some of the market's best single-day returns actually occur during bear markets, periods of at least 20% declines from the market's high. Trying to trade around these ups and downs can easily put you in a position where you wind up buying at high prices and selling low, missing the market's best days in between. It's a big reason why many investors average mediocre returns.

Again, the stock market as a whole tends to go up more often than down. It's not a guarantee, but history makes it clear that the best strategy is to buy, hold, and ride the wave. If you have the time horizon and risk tolerance to endure volatility, the S&P 500 is a proven wealth builder that does its best work over a multi-decade holding period.

Justin Pope has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.