Last April 2025, you may have watched your portfolio crater as markets crashed on what President Trump called “Liberation Day.” Maybe you panicked and sold when the S&P 500 plunged during those volatile days. Maybe you sat on the sidelines, waiting for things to calm down. Then, in what felt like a blink of an eye, markets not only recovered but hit new all-time highs by June.
Now you’re staring at index funds sitting near record levels, with financial headlines screaming about “overvalued markets” and elevated valuation ratios.
The question burning in your mind: Is this really a good time to start investing in index funds, or should you wait for the next crash?
Here’s the truth that might surprise you. The data shows that this exact question about timing your entry into index funds might be the wrong question entirely. After looking closely at decades of market data, including what happened to investors during and after crashes just like April’s, the evidence points to one clear conclusion: time in the market beats timing the market, every single time.
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Current Data Insights
Let’s start with where we stand today. As of January 2026, the S&P 500 is up 17.82% compared to the same time last year.1 One metric that financial experts often reference is the CAPE ratio (Cyclically Adjusted Price-to-Earnings ratio), also known as the Shiller P/E ratio. This measurement looks at stock prices compared to average earnings over the past 10 years, adjusted for inflation. It helps smooth out short-term earnings fluctuations to give a clearer picture of whether markets are expensive or cheap relative to historical norms.
As of December 2025, the global CAPE ratio sits around 27.71, which is above its long-term historical average but not at the extreme levels we’ve seen during major market peaks.2 Think of CAPE like a price tag on the entire stock market, when it’s high, you’re paying more for each dollar of company earnings, suggesting potentially lower future returns. When it’s low, you’re getting more earnings for your investment dollar.
In the meantime, investors have poured $363 billion into ETFs in 2025, with index funds still commanding the majority of these flows despite increased interest in actively managed funds.3 This shows that even after the April volatility, prudent investors are still putting their money into broad market index funds.
But it’s understandable if you are nervous. Fresh in everyone’s memory is that April crash when new tariff policies sent global stock markets tumbling. Granted, valuation concerns are real when markets sit above historical averages. Add in the ongoing uncertainty around Fed policy and inflation, and it’s natural to wonder if you’re buying at the top.
If you’re thinking to buy a stock index fund or almost any broadly diversified stock fund, such as one based on the S&P 500, now can be a good time to buy as long as you plan to hold it for the long term. The market generally rises over time because the economy grows and corporate profits increase.
The key phrase there is “prepared to hold it for the long term.” That’s where most investors get tripped up.
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April 2025 Crash: A Case Study
What happened in April 2025 gives us a real-time example of why market timing usually fails. In early April, new tariff policies were announced that would significantly increase costs on imported goods from many trading partners. The reaction was swift and severe, with stock markets around the world tumbling as investors worried about the economic impact of the new trade policies.
The crash was real and painful. Some investors saw their portfolios drop more than 27% during this period.4 Even typically stable investments like bonds sold off, creating widespread panic across financial markets. Many investors who had lived through previous market downturns found themselves shaken up by how quickly things deteriorated.
But here’s the critical part that many missed: Just days later, policymakers announced they would pause the tariff increases. This single announcement triggered what many described as one of the largest stock market rallies in years. Within weeks, the S&P 500 had turned positive for the year. By summer, both the S&P 500 and NASDAQ were hitting new all-time highs.
Think about that timeline. A mere seven days from panic to the beginning of recovery. Less than three months from crash to new highs.
The biggest mistake during chaotic markets is panicking and making moves without a real plan, often turning temporary drops into permanent losses. The benefit of staying invested became crystal clear to anyone who rode out those turbulent weeks.
This mirrors exactly what Warren Buffett told LeBron James years ago when asked for investment advice: “Owning the United States at a decent average price bought over time, you really can’t go wrong with that.”5 LeBron followed that advice and officially became a billionaire.
The lesson from April 2025 couldn’t be clearer. Investors who stayed invested through the crash saw full recovery plus additional gains. Those who sold and waited for “better entry points” missed the entire recovery rally.
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Market Timing vs. Time in Market
Let’s look at what decades of research tells us about trying to time the market versus simply staying invested. Charles Schwab conducted one of the most comprehensive studies on this topic, following five hypothetical investors over 20 years from 2005 to 2024.6
Peter Perfect had impossibly good timing, investing his $2,000 each year at the absolute market low. After 20 years, he accumulated $184,183.
Ashley Action invested her $2,000 immediately at the beginning of each year, regardless of market conditions. Her final balance: $175,541.
Matthew Monthly used dollar-cost averaging, investing $167 each month. He ended with $166,591.
Rosie Rotten had terrible timing, investing at each year’s market peak. Even with the worst possible timing, she still accumulated $138,471.
Larry Linger kept waiting for the perfect moment and never invested in stocks at all, keeping his money in Treasury bills. He ended up with just $47,357.
The difference between perfect timing and immediate investment? Just $8,642 over 20 years. The difference between investing at market peaks and never investing at all? Over $91,000.
But here’s the most important finding: The market rises 75.6% of the time in any given 12-month period. This means Ashley’s strategy of investing immediately actually yielded better results than Matthew’s dollar-cost averaging approach over time, because she was more often buying at lower prices than waiting.
The Cost of Missing the Best Days
A study conducted by Capital Group reveals another significant insight about market timing. They analyzed how the longer investors stay invested in the S&P 500, the higher the likelihood of positive returns, with ten-year periods historically being 100% positive.7
Another study from J.P Morgan shows how being fully invested, even during market volatility, is key to capturing growth, as missing just a few of the S&P 500’s best days can significantly reduce long-term returns.8
Here’s the kicker: Most of those best days occurred during bear markets and periods of extreme volatility. In other words, the best days to be in the market have historically been when it feels hardest to stay invested.
Analysis of investing at all-time highs provides additional perspective. Research shows that even if you had invested only at market peaks from 1950 to 2024, your returns would have been close to the market’s average returns over one, two, and three-year periods.9
This data covers some of the worst times in stock market history, including Black Monday in 1987, the dot-com crash, and the 2008 financial crisis.
Why Index Funds Make Sense Now
Given everything we know about market timing, index funds become an even more attractive option in today’s environment. Here’s why:
Low costs compound over time:
Many broad market index funds cost less than 0.10% expense ratios (the cost to own the fund per year). Compare that to actively managed funds, which often charge 0.6% or higher. Over decades, this cost difference can add up to tens of thousands of dollars in extra returns for index fund investors.
The Fidelity ZERO Large Cap Index Fund (FNILX) takes this even further, charging absolutely no fees while tracking an index of more than 500 U.S. large-cap stocks and performing very similarly to S&P 500 index funds. Vanguard’s Total Stock Market ETF (VTI) provides even broader exposure at just 0.03% in fees.
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Automatic diversification:
When you buy an S&P 500 index fund, you’re instantly owning pieces of 500+ companies across all major economic sectors. This built-in diversification reduces your investment risk compared to picking individual stocks or trying your luck at timing specific sectors.
No manager risk:
Here is another thing to consider; Index funds don’t face what analysts call “key-person risk.” There’s no star manager who might leave or make poor decisions. The fund simply tracks its own index, providing consistent performance that matches the market.
For investors looking to build a complete portfolio, consider a simple three-fund approach: a total stock market index fund, an international stock index fund, and a bond index fund. Warren Buffett has suggested an even simpler approach for most people: 90% in a low-cost S&P 500 index fund and 10% in short-term government bonds.
Strategies for Nervous Investors
I understand that even with all this data, jumping into index funds right now might feel uncomfortable. Here are practical strategies to help you get started:
1. Start with your foundation
Before investing in any index funds, make sure you have 3-6 months of expenses saved in a high-yield savings account. Right now, many high-yield savings accounts are offering rates above 3.5%. This emergency fund protects you from having to sell investments during market downturns. Check out our review of the best high-yield savings accounts to find the right option for your needs.
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2. Begin small and build consistency
If you’re nervous about current market levels, start by investing a smaller percentage of your available funds initially. Maybe begin with $500 per month instead of a $10,000 lump sum. This dollar-cost averaging approach naturally buys more shares when prices are lower and fewer when prices are higher.
You can easily set up automatic investments through most major investment platforms. This removes the temptation to try to time your purchases based on daily market movements or news headlines.
3. Consider your time horizon
Money needed within three years belongs in high-yield savings, Certificates of Deposit (CDs), or Treasury bills. Money not needed for 10-plus years is ideal for diversified, low-cost index funds, regardless of market timing concerns.
If you’re investing for retirement and have 20-30 years until you need the money, current valuations become much less relevant. The power of compound growth over those time periods typically overwhelms short-term valuation concerns.
4. International diversification
While U.S. markets currently trade at premium valuations, international markets offer more attractive pricing. Analysis shows that international developed markets and emerging markets are trading at much more reasonable valuations compared to U.S. stocks.10
Consider adding international exposure through funds like Vanguard Total International Stock ETF (VXUS) to balance your portfolio.
5. Stay the course during volatility
The most important strategy is psychological: expect volatility and don’t let it derail your plan. Markets will continue to experience corrections, crashes, and recovery periods. Your job is to keep investing consistently through all of it.
Choose an asset allocation you can stick with during both good times and bad. If a 20% market drop would cause you to panic and sell everything, then maybe an 80% stock allocation is too aggressive for your temperament.
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High Valuations: What to Know
Research indicates that while CAPE has some predictive value for long-term returns, it’s essentially useless for market timing.11 High valuations can persist for years before any correction occurs, and markets can continue reaching new highs even from elevated starting points.
More importantly, markets often underestimate how long certain conditions can persist, which can turn orderly pullbacks into bigger drops than expected. But trying to predict when these events will occur or how markets will react remains nearly impossible.
Research on global CAPE ratios provides additional perspective. Analysis found that investing in the cheapest 25% of countries by CAPE ratio from 1993 to 2018 would have returned 3,052%, compared to 962% for the S&P 500.12 But this required the discipline to invest in less popular markets and the patience to wait for the strategy to work.
For most investors, the complexity and emotional difficulty of this approach makes it impractical. Sticking with broad U.S. market index funds, provides a much more straightforward path to building wealth.
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The Automation Advantage
One of the biggest advantages of index fund investing is how well it works with automation. Once you set up automatic investments, you remove emotion from the equation entirely.
When markets crashed in April, automated investors kept buying. When markets recovered and hit new highs, they kept buying. This mechanical approach naturally implements the dollar-cost averaging strategy that smooths out volatility over time.
Major investment platforms make this easy to set up. You can automate investments from your bank account into index funds on whatever schedule works for your budget such as weekly, monthly, or quarterly.
The psychological benefit is huge. Instead of wrestling with “Is now a good time to invest?” every month, you just let the system work. Over time, this consistency typically produces better results than trying to make tactical decisions based on market conditions.
Next Steps
The data is clear: trying to time your entry into index funds based on current market levels, recent crashes, or valuation concerns typically leads to worse outcomes than simply starting and staying consistent.
You control what you can control such as your savings rate, your investment costs, your consistency, and your time horizon. You can’t control market timing, tariff policies, Fed decisions, or when the next correction will come.
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Here’s what you can do today:
Build your foundation: Start with an emergency fund in a high-yield savings account. This gives you the peace of mind to invest for the long term without worrying about short-term needs.
Choose low-cost index funds: Consider broad market options like Fidelity’s FNILX (zero fee), Vanguard’s VTI (0.03% fee), or similar low-cost funds. These give you instant diversification across hundreds of companies.
Automate your investments: Set up automatic monthly investments through a reputable brokerage platform. This removes the temptation to try timing your purchases and ensures you keep investing regardless of market conditions. Check out our review of the best brokerage accounts to find the right platform for your needs.
Think long-term: Focus on your goals 10, 20, or 30 years from now rather than what markets might do in the next 10, 20, or 30 days. Every day you wait is a day less for compound interest to work in your favor.
Warren Buffet once said: “The best time to plant a tree was 20 years ago. The second best time is today.” The same applies to index fund investing. Markets will continue to be volatile, headlines will continue to be scary, and there will always be reasons to wait for a “better” time.
But the data shows that for long-term investors, there’s never been a bad 10-year period to own a broad market index fund. Even at market peaks, during crashes, or when valuations are high, time in the market consistently beats timing the market.
The question isn’t whether now is a good time to invest in index funds. The question is: How much longer do you want to wait before you start building wealth for your future?
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