Still Investing as the Stock Market Soars? 1 Good Reason You Might Want to Press Pause.

The stock market has been thriving since it first entered a new bull market back in October 2022. The S&P 500 (^GSPC -0.38%) is up by nearly 67% in that time, as of this writing, and many investors are hopeful that this trend will continue heading into 2025 and beyond.

The average S&P 500 bull market since 1929 has lasted more than 1,000 days (or just under three years), with some lasting far longer. The bull market following the Great Recession, for example, lasted close to 11 years. So it's plausible that the current surge could still have plenty of time left before we face another downturn.

That said, the market can be unpredictable. While nobody can predict for certain where stock prices are headed in the near future, there's one good reason you might want to hold off on investing right now.

Do you have an emergency fund?

While it can sound counterintuitive, building a solid stash of emergency savings outside of the stock market can help protect your investments -- and your overall financial health.

In theory, if the stock market takes a turn for the worse, you won't actually lose any money -- as long as you keep your cash invested and avoid making withdrawals.

For example, say that you invest in a stock at $100 per share, and that stock then drops to just $80 per share during a market slump. You'll have lost $20 in value, but as long as you don't sell, you won't actually lose any money. If that stock eventually bounces back to, say, $120 per share, selling at that point would earn you a $20 profit.

In other words, even if the market sinks in the relatively near future, you can ride out the storm by simply keeping your money invested. But if all of your cash is tied up in the market and you face an emergency expense, you may have no choice but to pull your money out and sell at a loss.

Again, there's no way to know exactly when the next downturn will strike. But it's incredibly important to have at least three to six months' worth of savings stashed in an emergency fund separate from the stock market. That way, if you're hit with an unexpected cost, you can leave your investments alone without risking locking in losses by selling after prices have dropped.

One other big risk factor to consider

If you already have a robust emergency fund, another reason you may want to hold off on investing is if you haven't done a checkup on your portfolio in a while.

Not all stocks are healthy investments, and things can change over time. Perhaps a stock you purchased years ago was a fantastic buy at the time, but the company has slipped lately and may no longer be a strong investment.

Everything from management changes to shifts in industry trends can signal that a stock is no longer wise to own. Now more than ever, it's crucial to double-check that every single stock in your portfolio belongs there. Otherwise, if the market takes a turn and you suddenly realize you need to sell some investments, you could be forced to sell at a much lower price.

It's equally important to research any new stocks you're thinking of buying. Now could be a smart time to invest if prices continue surging, but it can be tough to discern between healthy stocks and those that only appear to be thriving because of overall market hype. By studying a company's fundamentals rather than relying solely on market performance, you can ensure you're buying solid stocks that are more likely to survive any future volatility.

The market may be soaring, but it's more important than ever to maintain a clear head when investing. While continuing to invest can be a smart idea right now, double-checking that you have a solid emergency fund and are investing in healthy stocks will protect your portfolio as much as possible.

Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.