With Stocks Near All-Time Highs, Is It Time to Start an IRA? The answer may surprise you

The S&P 500, widely considered the benchmark index that best reflects the strength or weakness of the U.S. stock market, recently hit a new all-time high. In the past year alone, the S&P 500 has risen more than 35%, driven by stronger-than-expected economic conditions, strong corporate earnings, slowing inflation and expectations of lower interest rates.

If you’re not currently investing in an individual retirement account or IRA, this may seem like a bad time to start. After all, the main goal of investing is to buy low and sell high. Isn’t investing when the stock market is at an all-time high literally the exact opposite?

The short answer: despite the market’s strong performance, it remains big It’s time to start investing with an IRA. Let’s take a closer look at why it was generally wrong to avoid the stock market when it seems expensive to get started.

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Smart strategy when stocks are “expensive”

Please note that I put the word “dear” in quotation marks. I won’t get into the technical details, but just because the stock market – or any individual stock – is trading at an all-time high doesn’t necessarily mean it’s expensive. For example, many people thought the S&P 500 was expensive in 2015 after years of strong recovery from the financial crisis, only to see the index rise another 74% over the next five years.

The point is, if you think stocks are expensive right now, you might be right, or you might be wrong. But trying to time the market is a losing battle.

With that in mind, the best way to invest through an IRA right now is to use a strategy called dollar-cost averaging. The simple explanation is that it means investing equal dollar amounts at regular intervals in your favorite stocks, ETFs, or mutual funds. As a simple example, instead of investing $6,000 at a certain point in the year in an S&P 500 index fund, you could invest $500 in the same index fund at the beginning of each month.

By doing this, you mathematically guarantee yourself a favorable average price. Since you’re investing the same amount of money each time, you’ll buy more shares of the index fund when prices are low and fewer shares when prices are higher.

Bottom line

The key takeaway is that it is never bad It’s time to open an IRA and start investing, even if stocks seem expensive. First, opening an IRA and contributing to it through the broker of your choice gives you valuable tax benefits. And secondly, no matter how expensive a stock looks, it never It was a bad time to invest money in the market for the long term.

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For example, perhaps the worst time to invest in the last two decades was at the market’s peak in 2007, before the financial crisis caused the S&P 500 to fall more than 50%. If you had invested in the underlying S&P 500 index fund at the wrong time before the market crashed, you would have returned more than 420% today.

Think about this for a minute: if you invested $10,000 in absolute worst just before the biggest market crash of our lifetime, your investment would be worth over $52,000 today.

Investing through an IRA is a great way to take advantage of the long-term cumulative strength of the stock market, whether it does today, tomorrow or next month. Consistent investing through a tax-advantaged retirement account has been one of the most reliable ways to create long-term wealth throughout modern history.