Uncertain whether this is the right time to invest in the stock market? If you closely observe the investment patterns of famous investors, you will come across clear warning signs that you should stay on the sidelines with your money. Let us have a look at the situations in which you should reason twice before investing.
Is that money going to be needed in the next year or two? Keep it far away from stocks! A sobering stat: even after cash is beaten 69% of the time over two years, there is still a 31% chance you’d have losses when you need the money most.
The important factor is the debt. If you have a credit card and you are paying interest every month, you need to fix that. The math is simple: most of the time, credit card interest rates will pay more than what you can make in the market. In the case of high-interest student loans, the same formula is applicable. Paying off these debts will help you in the long run.
The emergency fund has no business being in stocks: here’s something that most people get wrong about. Save 3-6 months’ income somewhere safe. So, your emergency money could still work for you as it dips into the high-yield savings account range exceeding 4% today rather than getting a rollercoaster ride in fixed deposits below 4%.
Want to know something interesting? It could be time right now to stay out of the market according to how expensive the market seems. As of February 2025, the Shiller P/E ratio is sitting at 34.5, which is very far above its historical average of 16.9. But if your valuations are this expensive you probably should reconsider plopping all your money in at once.
Getting close to retirement? That’s another yellow flag. In 2008, we crashed and wiped out 38.5% of the market. Now, picture that happening at the time when you are supposed to start living on your investments. Not fun, right?
If your job situation and income are not stable enough, then build up that cash cushion first. In fact, that’s why this is especially true if you’re saving for something specific like a house or your kid’s college fund that’s approaching.
The right answer here is that if market swings make you sick to your stomach, then stocks may not be your game. The VIX, or the market’s fear gauge, just hit a six-month high, and some of the big names include Robert Kiyosaki, who is warning of a potential crash in 2025.
Bear this in mind: Investors who missed the best 10 days in the trading period between 1993 and 2013 missed out on 9.2 per cent annual returns but made 5.4 per cent. If you are going in, you should be prepared to stay for a long time. Patience, not perfect timing, is things that the market rewards.