Should I buy ASX shares or look to conserve cash right now?

Periods of market volatility can leave investors wondering whether they should buy ASX shares while prices are falling, or sit on the sidelines and conserve cash.

That dilemma has been front of mind this week. The ASX 200 tumbled on Monday after oil prices surged in response to escalating tensions in the Middle East. Markets have partially recovered today, which is a reminder of how quickly sentiment can shift.

When markets move sharply like this, it can feel uncomfortable to invest. But these swings are also a normal part of long-term investing.

Volatility is part of the journey

Share markets rarely move in a straight line. Even during long bull markets there are corrections, geopolitical shocks, and sudden shifts in investor sentiment.

Events such as wars, inflation scares, or interest rate concerns often trigger short-term selloffs. Yet historically the market has tended to recover and move higher over longer periods as company earnings continue to grow.

That is why many experienced investors try to avoid making big decisions based solely on short-term headlines.

Why going all-in can be risky

One challenge during volatile periods is timing. It is extremely difficult to know whether the market has already hit its low point or whether further declines are coming.

Investing all your available cash at once can therefore be risky. If ASX shares fall further after you invest, it can feel discouraging even if the long-term outlook remains positive.

This is why many investors prefer a more gradual approach.

The case for dollar-cost averaging

Dollar-cost averaging (DCA) is a strategy where you invest money into the market at regular intervals rather than committing a large lump sum at once.

For example, instead of investing $10,000 immediately, you might invest $1,000 each month over the next 10 months.

This approach helps smooth out the effects of market volatility. Sometimes you will buy shares when prices are higher, and sometimes when they are lower. Over time, this can reduce the pressure of trying to pick the perfect entry point.

Many long-term investors have used this strategy to steadily build positions in high-quality companies such as ResMed Inc. (ASX: RMD), REA Group Ltd (ASX: REA), or Xero Ltd (ASX: XRO). Others prefer exchange traded funds (ETFs) like the iShares S&P 500 ETF (ASX: IVV) to gain broad exposure to global markets.

Patience usually wins

The most important factor in long-term investing is often not timing the market perfectly, but simply staying invested.

Volatility can feel unsettling in the moment, but over decades the share market has historically rewarded patient investors.

Rather than choosing between buying ASX shares or holding cash entirely, many investors strike a balance. Keeping some cash on hand can provide flexibility, while gradually investing over time allows you to take advantage of market dips.

In uncertain markets, a disciplined approach often proves far more valuable than trying to predict the next short-term move.

The post Should I buy ASX shares or look to conserve cash right now? appeared first on The Motley Fool Australia.

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Motley Fool contributor James Mickleboro has positions in REA Group, ResMed, and Xero. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended ResMed, Xero, and iShares S&P 500 ETF. The Motley Fool Australia has positions in and has recommended ResMed and Xero. The Motley Fool Australia has recommended iShares S&P 500 ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.