Investors are saddened by the downward chart.

Is it safer to pull money out of the stock market or keep investing?

The stock market in 2022 will be a bit of a roller coaster. Unfortunately, unlike a true roller coaster, the stock market’s declines are less interesting than the upswings for long-term investors, and we certainly have a lot of declines so far this year.

This raises a key question: Given this wild volatility, is it safer to pull money out of the stock market or stay invested for now? As with most questions about the market, there really is no one-size-fits-all answer. Still, if nothing else, the market’s recent moves suggest it’s important to keep your financial institutions in order.

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Why your own financial situation matters when it comes to investing

Stock market declines are often accompanied by job losses. That’s at least in part because many companies use stock as a form of money — exchanging it for cash or using it instead of cash to pay for their expansion. Using stocks in this way becomes harder to justify when the market falls, which ultimately reduces expansion investments.

This usually leads to unemployment. After all, if expansion isn’t going to happen, there’s no need to hire or contract people to deliver expansion projects. Even if companies spread these expansion projects across their existing workforce, jobs would be vulnerable if those projects disappeared.

As a result, if you find yourself out of a job at the same time as your investments are falling, you may wake up in a financially damaged world if you are not prepared. After all, your bills don’t go away because of your income. If your only way to pay those bills is to sell stocks when they fall, you’re far less invested in any market recovery that might occur.

So, what does a healthy financial position look like?

A healthy financial position has three components: debt control, an emergency fund, and a reasonable time horizon.In order to control debt, paying off debt is really important almost all your debts. The only meaningful reservations are those where all three of the following hold true:

  • It has low interest rates — either no interest or low single-digit rates.
  • Its payments are reasonable – low enough that you can pay without seriously affecting your lifestyle.
  • It provides a key purpose for your future – like giving you a place to live, a way to make a living, or a way to keep you alive.

Using the debt avalanche method to pay off all other debts can help you reduce your debt load quickly.

Once your debt is under control, building an emergency fund for three to six months can help you if you find yourself without a job during a market downturn.No, you can’t extend unemployment with just six months of emergency funds, but you can usually buy enough time to get at least Some The advent of alternative sources of income.

On a somewhat related note, it’s important to have an appropriate time horizon for any stock investment you make. The money you expect to need over the next five years or so doesn’t belong in stocks. This is because stock market returns are never guaranteed. In a five-year time frame, you can at least give yourself a chance to earn a positive return before you need to cash out the stock.

If these parts are in place, now might be a good time to invest

As long as the rest of your financial institution is in order, now is a better time to invest than when the market was at an all-time high. After all, because of the recent stock market downturn, every dollar you invest can buy more shares of the same great company that you could have bought earlier at a higher price.

Of course, there’s still no guarantee that the market will recover quickly, but if your overall finances are in good shape, it’s easier for you to wait. So make today the day you commit to laying a solid foundation. This way, you can even invest in turbulent times for stronger long-term returns.

Chuck Saletta has no positions in any of the stocks listed above. The Motley Fool has no positions in any of the stocks listed above. The Motley Fool has a disclosure policy.

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