Think It's Too Risky to Invest in the Stock Market Right Now? History Says Waiting Is Even Riskier.

The S&P 500 index (SNPINDEX: ^GSPC) reached a new record high in October, but there are many reasons why the stock market might feel risky. Interest rates are rising. Some investors are worried about high levels of debt among companies involved in the artificial intelligence (AI) boom. Others worry that the payoff from AI won't be big enough to recoup those costs.

The world always feels uncertain. There's never going to be a perfect time where someone pats you on the shoulder and says: "Everything is going to be OK forever! Your money is perfectly safe in the stock market!"

During uncertain, risky-feeling moments like these, you might feel tempted to "time the market" by holding back money that you usually would put into the stock market. You might feel like pausing your regular investment contributions. But history shows that this is a mistake. Waiting to invest until stocks go lower or "the market calms down" is likely to cost you more money than it saves.

For most people, "time in the market" beats "timing the market." Let's take a closer look at how this works and why it's a smart move for your investments.

Image source: Getty Images.

"Time in the market" = investing immediately, as soon as possible

If you have some extra cash to set aside to invest in stocks, whether it's part of your regular 401(k) contributions, an IRA, or a brokerage account, you might wonder, "When is the right time to invest?" Based on extensive research from Schwab, the "best" time to invest is: as soon as possible. As soon as you know that your chunk of money, whether it's $100 or $1,000 or more, is designated as long-term investment money, you should go ahead and invest it in the stock market.

The sooner you invest your money, the more "time in the market" it has to grow. It might sound counterintuitive, but this simple strategy ("invest as soon as possible") tends to deliver the best results.

Schwab research: Why "time in the market" beats "timing the market"

Schwab's research looked at 20 years of stock market returns from 2005 to 2024, based on $2,000 per year of investments. It analyzed hypothetical results from example investors based on:

• Perfect market timing: Buying $2,000 worth of stocks all at once, at the S&P 500's lowest closing level each year.
• Longest time in the market: Buying $2,000 worth of stocks all at once, on the first trading day of the year (even if the S&P 500 was higher or lower).
• Dollar-cost averaging: Buying $166.67 worth of stocks each month for 12 months. Many investors do this with their 401(k) plans or other retirement accounts.
• Worst market timing: Buying $2,000 of stocks all at once on the day of the S&P 500's highest level of the year -- when stocks were most expensive.

Here's how each of these investing strategies worked, after 20 years of compounding in the S&P 500:

Data source: Schwab Center for Financial Research.

It's no surprise that "perfect market timing" got the best investment returns. But perfect market timing is impossible. What's more impressive is that just investing as soon as possible each year ("longest time in the market") got the second-best result, only 8.3% less than perfect (impossible) timing.

Time in the market slightly outperformed dollar-cost averaging, but dollar-cost averaging is well worth doing. Many people invest on every payday, every month. If that's the easiest way for you to keep buying stocks, keep doing that.

But look at the last-place result in the table above. Even the "worst" market timing, buying stocks at the highest prices at the worst possible moments, paid off for a long-term investor.

How to invest now: Low-cost index funds for the long term

It's easy to believe that the moment we're living through is uniquely risky, volatile, and uncertain. But investors should try to keep calm and have a historical perspective. The S&P 500 index has delivered 9.98% annualized returns since 1928. That includes global catastrophes and economic collapses, and lots of stressful headlines and everyday problems along the way.

The stock market is resilient. It reflects the power of human ingenuity and collaboration to keep going, building, and growing. The Vanguard S&P 500 ETF (NYSEMKT: VOO) lets you own that long-term upside for an ultra-low expense ratio of 0.03%. In the past 16 years since the fund's inception, VOO has delivered annualized returns of 14.94%.

There's no guarantee that investing in VOO or any index fund will keep delivering such strong returns. But it's a sign that for most people, the best investment strategy is just buying low-cost index funds as soon as you can and leaving that money alone for long-term growth.

Invest early. Invest often. Give yourself as much time in the market as possible.

Ben Gran 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.