Up 4% in 2023, Is It Safe to Invest in the S&P 500 Right Now?

The first two and a half months of 2023 have been a mixed bag for the $S&P 500 Index (.SPX.US)$ . The index, a widely used proxy for the U.S. stock market, was up nearly 4% as of March 24.

The $CBOE Volatility S&P 500 Index (.VIX.US)$ is known as Wall Street's fear index. Developed by the Chicago Board Options Exchange (CBOE), it measures the level of fluctuation investors predict in the S&P 500 index in the next 30 days. As of this writing, the VIX was just below 22; anything above 20 implies that traders expect higher than usual volatility in the 30 days ahead.

Some people want to avoid investing during a stock market correction or bear market, despite the commonsense investing wisdom of "buy low, sell high." This approach is especially problematic because the market's best days often follow its worst days. And according to $Wells Fargo & Co (WFC.US)$ research, missing the best 20 days of the market, based on S&P 500 data between September 1992 and August 2022, would have reduced an investor's average annual returns from 7.8% to 3.2% -- which was less than the average inflation rate during the 30-year period.

$Charles Schwab (SCHW.US)$ study examined the returns of hypothetical investors who consistently invested $2,000 each year between 2001 and 2020. An investor who had perfect timing and consistently invested $2,000 at the S&P 500's lowest closing level for the year in each of the 20 years would have had $151,391 at the end of two decades. But an investor who had impossibly bad luck and consistently invested $2,000 at peak closing level in each of the 20 years still would have seen his or her investments grow to $121,171.