Should You Invest in the Stock Market Right Now or Wait? History Offers a Clear Answer.

Investors are familiar with the truism that putting money in the stock market is the best way for most people to amass long-term wealth. For instance, the S&P 500 index (SNPINDEX: ^GSPC) generated a total return of 1,910% over the past 30 years (as of Sept. 2), growing a starting capital sum nearly 21-fold during that stretch. The numbers are clear.

But investors might have questions about the best time to allocate savings to the S&P 500 index. This is a pressing matter today, since the benchmark has climbed 100% since the start of 2023. Some pundits are saying that a crash is coming in the not-too-distant future. This can lead to fear, uncertainty, and doubt (FUD).

Should you invest in the stock market right now? History offers a clear answer.

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You can still make money if you buy high

At recent prices, the S&P 500 index is trading 2% below its peak, which was reached in August. This gives prospective investors an opportunity to buy a related exchange-traded fund (ETF), like the Vanguard S&P 500 ETF, while it's on a small dip.

Many people try to guess when the market is going to fall and invest before it starts to rise again. Buy low and sell high, as the saying goes. But picking the right moment is virtually impossible without getting extremely lucky, and those who try often miss out on gains while they're waiting. This is why analysts often say timing the market is a losing activity.

The good news is that investors can make money even if they buy high. According to research compiled by Bank of New York Mellon, if you invested in the S&P 500 while it was at an all-time high, you generated an average return of 9.7% over the following year. Extending that time horizon, the average annualized return was 8.6% over the subsequent five years. Those returns are lower when the market was not at an all-time high. This is extremely encouraging for investors who feel like they've missed the boat by watching the S&P 500 index's rise from the sidelines.

The FUD mentioned earlier is warranted, though. The macroeconomic backdrop is being defined by the unknown path of inflation and interest rates and how the Kevin Warsh-led Federal Reserve will handle things. The stock market, driven by the ongoing artificial intelligence boom, is at a historically elevated valuation.

It seems like the rational move is to wait until a bear-market crash arrives. At that point, you can be aggressive and start investing. The only problem with this approach is that stocks can keep rising before a downturn happens, and you could end up buying in at higher prices compared to where they trade today.

Dollar-cost averaging is a simple and effective strategy

Successful investing does not depend on figuring out if now is a good time to put money to work. Favorable outcomes are achieved by making investing a consistent habit that's done over many decades, not a single event. Patience is rewarded, as history shows.

This is why dollar-cost averaging (DCA) is the best methodology to adopt when investing in the stock market. Allocating small amounts of money every month is an extremely effective way to build wealth. The data backs this up.

A $10,000 investment in the Vanguard S&P 500 ETF, earning a 10% annualized total return, would grow to $174,500 after 30 years. Investing an additional $100 every month during this same period of time would result in an ending balance of $381,800. Consistency adds up, like a snowball effect.

The best part of a DCA strategy might not have anything to do with the numbers. Those who choose this option don't have to spend one second trying to assess if they should invest right now or wait, as they are buyers in any market environment. It's a hassle-free, automated, and proven approach.

Neil Patel has positions in Vanguard S&P 500 ETF. The Motley Fool has positions in and recommends Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.