More Than Half of Americans Are Afraid to Invest in the Near Term. Here’s Why You Should Keep Investing Today

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It’s easy to see why the idea of investing more this year may be daunting. But read on to see why it’s still a smart idea. 

Investing money, whether in a brokerage account or a dedicated retirement account, is a great way to grow wealth over time. But if you’re hesitant to invest more of your money this year, you’re in good company.

A whopping 53% of Americans are hesitant to invest any additional money in the stock market for the foreseeable future, according to data from Allianz Life. And it’s not so difficult to see why.

There’s a lot to worry about these days

For one thing, inflation continues to be a problem for consumers despite the fact it’s been cooling consistently. But because living costs are still elevated, finding the money to invest with may be a challenge for some people.

And then there are recession fears to think about. Many financial experts remain convinced that the U.S. economy is going to take a turn for the worse at some point in 2023, or otherwise shortly thereafter.

While recessions don’t always go hand in hand with stock market declines, that’s often the case. So consumers may not want to pump more money into investments at a time when their portfolios may be poised to plunge.

Also, the reality is that it’s important to have cash on hand in a savings account ahead of a recession. So some people may be holding off on investing so they can boost their emergency funds.

Now to be clear, if your emergency fund needs work, then it’s best to prioritize that over investing. But if you’re set on emergency savings, then it pays to keep investing today, even if you’re worried about the economy.

Why investing really pays off

Any time you hold off on investing money of yours, you limit the extent to which it can grow. Let’s say you have $1,000 to invest with now, only you don’t go that route because you’re worried about a near-term recession.

The stock market has, over the past 50 years, generated an average annual 10% return before inflation, as measured by the S&P 500. If you invest $1,000 today and do nothing for the next 15 years, you could grow that sum into about $4,200, assuming an average return of 10% a year in your portfolio.

Wait 12 months to invest that money, and in 15 years, you’ll only end up with about $3,800. That’s a pretty big difference.

Also, if you opt to not invest in an IRA or 401(k) plan this year, you’ll miss out on the tax benefits of contributing to these accounts. Traditional IRAs and 401(k)s allow your contributions to go in tax-free. So if you put $3,000 into one of these accounts, that’s $3,000 of income the IRS can’t tax you on. And then, any gains in a traditional IRA or 401(k) are tax-deferred so you’re not paying the IRS anything on that money until the time comes to withdraw from your account.

Don’t give into fear

You may be truly scared to invest your money at a time like this, and that’s totally understandable. But do remember a few things.

First, you’re ideally not investing for a short period of time, but rather, a long one. So even if the stock market sees its share of turbulence later this year or next as a recession hits, it doesn’t mean you’re doomed to lose money. If your investments decline in value but you don’t sell them, there’s a good chance your portfolio will recover and then some in the long run.

Also, a recession won’t necessarily wreak havoc on your portfolio, especially if you make a point to diversify. This isn’t a guarantee, but it’s possible for unemployment levels to rise and consumer spending to slow down without stocks taking an absolute beating.

Right now, your primary goal should be to make sure you’re recession-ready. That means having an emergency fund with enough cash to cover at least three months of bills. But if you’re set on emergency savings and you’ve done whatever else you can to withstand a recession, then there’s really no reason not to invest the extra money you have.

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