The stock market has been on a remarkable upward trajectory since entering a new bull market in October 2022. As of this writing, the S&P 500 has surged by nearly 67%, fueling optimism among investors about continued growth into 2025 and beyond. Historically, the average bull market lasts nearly three years, and some, like the one following the Great Recession, have extended over a decade.
Despite this momentum, the market’s unpredictable nature warrants caution. While investing during a bull market can lead to gains, there are practical reasons to evaluate your financial readiness before diving in further. This article explores one crucial factor—your emergency fund—and why it’s critical to assess your portfolio as the market soars.
Do You Have an Emergency Fund?
While it might seem counterintuitive, prioritizing an emergency fund over immediate stock market investments can safeguard both your portfolio and financial stability.
When the market is thriving, it’s tempting to allocate all available funds to investments. However, if a downturn occurs, having an emergency fund ensures you won’t be forced to sell investments at a loss. For instance, let’s say you purchase a stock at $100 per share, and during a market slump, its value drops to $80 per share. If you’re financially stable and can leave your money in the market, you avoid locking in a loss. But without an emergency fund, a sudden expense could force you to sell that stock prematurely, resulting in realized losses.