When should I invest?
Putting money in the stock market can invoke fear in some would-be investors. Nobody wants to end up buying right when prices peak. And investing in the midst of a market downturn can be even more gut-wrenching. It’s impossible to know if the worst is over or if more losses are yet to come.
So how do you evaluate whether it's a good time to buy stocks and when to wait for a pullback in the market? The best answer is you don’t. Both passive index fund investors and individual stock investors will likely be better off consistently buying shares and ignoring the everyday ups and downs of the market. When you start investing isn’t as important as how long you stay invested,
Is now a good time to buy share?
If you're looking to invest for your future -- five, 10, or 40 years off -- then now is as good a time as ever to buy stocks.
Despite the recession fears brought about by two straight quarters of negative GDP growth in the United States during the first half of 2022, it’s important to remember the market is forward looking. Stock values are based on future expected earnings. And despite the occasional GDP contractions, earnings tend to go up over the long run. That said, there are still good stocks to buy amid a recession.
If you invest consistently over time -- putting more cash into your investments every month or so -- you'll end up catching a correction or a stock market crash on occasion. Those are opportunities to invest even more than usual if you can swing the cash flow.
Of course, it's not particularly feasible to plan for the unpredictable. If the market could predict a crash in stock prices, a crash would never actually occur.
If you like to research stocks, it might be harder to find good buying opportunities when the overall market valuation climbs higher. Fewer stocks will present value relative to their underlying fundamentals, but that doesn't mean those opportunities don't exist. It's always a good time to invest when you find a security you've determined to be undervalued by the rest of the market.
On the other hand, you’ll likely find more opportunities to buy shares of undervalued companies during a broad market decline. Those are great opportunities to act on the research you’ve done and buy shares well below where they were trading just a few months ago.
Warren Buffett once said, "I make no attempt to forecast the market -- my efforts are devoted to finding undervalued securities." For him, whatever the market is doing doesn't matter.
The best way to build wealth is to stay invested, but I know that can be challenging.
It’s easier if you invest only for long-term goals. The reason you don't invest money you may need, in the next five years, is because it’s highly possible the stock or mutual fund you purchase will drop in value in the short term. If you need those funds for a large purchase or emergency, you may have to sell your investment before it has a chance to bounce back, resulting in a loss.
But if you’re investing for the long term, those short-term drops aren’t of much concern to you. It’s the compounding gains over time that will help you hit your retirement or long-term financial goals.
To discuss you and your family's financial requirements, contact me, I will be happy to assist with whatever questions you may have.
Rob
E:robert.gourlay@holbornassets.com T:(+6)01151565649 W:www.rgwealthsolutions.com
Comments