Should You Buy Stocks Now or Wait Until the Dust Settles? History Has a Clear Answer.

You've probably read the phrase "stock market whiplash" multiple times in recent days. That's an apt term for what's gone on in the market.

The S&P 500 (SNPINDEX: ^GSPC) rose more than 4% early in the year. It then plunged nearly 19% over worries about the Trump administration's tariffs. But the S&P 500 rebounded strongly after the White House delayed its steep reciprocal tariffs on most countries by 90 days.

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Should you buy stocks now, or wait until the dust settles? History has a clear answer.

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The answer for long-term investors

The S&P 500 has entered a bear market 25 times since 1928, according to Yardeni Research. The index has been in correction territory (as it is now) even more times.

The chart, which goes back to March 4, 1957, when the S&P 500 was created in its current form with 500 companies, should answer any questions long-term investors might have about whether to buy stocks.

^SPX data by YCharts

History truly is clear: Any time is a good time to invest, if you're willing to wait a while. The major market sell-offs of the past were painful at the time, whether we're talking about the dot-com bubble bursting, the 2008 market meltdown, or the steep plunge at the beginning of the COVID-19 pandemic. However, they all look like minor bumps in the road, in the larger context of what's happened with the S&P 500.

Granted, you might have been able to make even more money if you were able to buy close to when the market bottomed out. However, timing the market is easier said than done. Some investors might avoid some of the downturn by selling stocks, but then miss out on the eventual recovery. Others could incur more losses by buying and selling as the market whipsaws back and forth than if they had bought and held.

The reality is that no one knows for sure when the stock market has hit its bottom. We don't know now if the S&P 500's rebound will be sustained, or if it will decline sharply again. However, if history is any guide, we can count on the stock market rising over the long run.

Pretty good odds for shorter-term investors, too

Most financial advisors would recommend not putting money in the stock market if you'll need it within the next five years. But what if your investing time horizon is 10 years? History shows you have pretty good odds of making money investing in the S&P 500 even if you're a shorter-term investor who doesn't have several decades to wait for your portfolio to grow.

Going back to 1926, the 10-year annualized rolling return of the S&P 500 (and its predecessors) has nearly always been positive. Throughout much of this period, the 10-year rolling return was a double-digit percentage.

Why history is on your side

History is on your side if you're a long-term investor -- and even if you're a shorter-term investor (to a point). But why is that the case? You could say that the stock market has an autocorrect feature.

For example, let's look at stock market declines caused by economic downturns. When the U.S. economy weakens, the Federal Reserve cuts interest rates. This makes it cheaper for businesses to expand and typically leads to a recovery.

In our current situation, worries about tariffs have caused the S&P 500 to sink. However, the longer the market remains down, the more political pressure will build to change course. The ultimate "autocorrect" for stock market corrections and bear markets resulting from political decisions is elections. In the U.S., a new Congress is elected every two years and a president every four years.

Within the S&P 500, regular rebalancing can be similar to autocorrect functionality. Stocks that succeed receive a higher weighting based on their larger market cap, while those that flounder are assigned a lower weighting and can be replaced if their market caps decline too much.

You could try to wait for the dust to settle with the stock market. However, if your investing timeline is long enough, the best approach is usually to buy and hold.

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Keith Speights has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.