It depends on your risk

 Have you asked an innocent question in a personal finance forum and gotten back that most vague response: "it depends"?  

I realize it's frustrating. They act like risk is something you KNOW, like, "well I like skydiving so I'm obviously a risky person, so I guess I'll invest my retirement in meme stocks." Or if you're like me, you're worried about losing money, so does that mean you're not risky and don't DESERVE a reward?

So let me put it another way. When I say "what's your risk?" what I really mean is "do you have a backup plan?" 

MOST of the time, if you invest in a whole market index fund, the stock market goes up. If you can keep your money in longer, it's even more likely to go up. 

So let's say you want to invest $20,000 because you want to buy a car in the next couple years. 

There's a chance that your investment will grow and you can buy your car next year. If it doesn't, you just have to wait and buy your car another year. Are you okay with that? Then you can invest your car savings. Look back at a stock market chart - see how VTSAX has gone up and down over the decades. Picture yourself as someone who invested in any of those years. How would it have turned out for you? Sure, the past doesn't predict the future, but the more you zoom out the more you see that the stock market kept on going.

On the other hand, let's say you're getting married in a year. The date is set, the venue is booked, you've already made some payments and there's NO going back. If you wake up in a year and half your money is gone, what's your backup plan? 

Maybe you can split the difference. If you invest half, save half, then you risk losing $5000 in a stock market crash instead of $10000.

These are the scenarios you'd want to play out in your head. The market crashed in 2001, 2008, 2016, 2020, 2022. The 2008 crash took us until 2012 to recover! 

But also in 2020... a lot of people saw the crash, pulled out their investments, and missed out on tons of growth. I know people who pulled out of their investments. I don't know anyone who predicted the bottom and got back in during March/April. Only the most boring investors, who just plod along and invest a little every month regardless of what's happening, got to grow their money to its full potential and take advantage of the big peak at the end of 2021. 

That "crash" I'm talking about in 2022 was about a 20% drop. People saw their portfolios go down. But anyone who invested in 2020 was still ahead. The lowest 2022 price was still higher than 2020 and all the years before it. 

It's complicated to think about, but that's what we mean by risk. There are ups and downs, and if you don't need to sell low right away, you will get through all of it and you don't care.