Putting money in the stock market was never out of risk. And for first-timer investors, the risk invokes fear. No one of us wants to end up buying when the prices peak. Now the question is, how can you know whether “is it a good time to invest in the stock market?” or you need to wait for a little.
Timing plays a crucial role when it comes to investment. Whether it is about buying a stock or you are thinking about selling your stocks, if it is not the proper time, then you might end up making a considerable loss.
Is It A Good Time To Invest?
Are you looking to invest for your future- like 5 years, 10 years, or 40 years off? Well, then this is really a great time to buy stocks. When you wait for a stock to pull back with a long-time horizon, it is not going to shift the pointer that much.
After 40 years, how much different a 10% will make when your original investment has already grown over 10-fold? If you invest consistently over time, it is more than putting more cash every month or so in your investment.
This way, you will be able to catch both a stock market crash and a correction from time to time. In case you can swing the cash flow, those are really some great opportunities for investing even more than you usually do.
It is also said that it is not particularly feasible to plan for the unpredictable. When the market is able to predict a crash in the stock prices, there actually will not be any crash. When the overall market valuation is climbing higher, it might be really challenging to find some good buying opportunities.
Relative to the underlying fundamentals, only fewer stocks will present value. But it does not say that all those opportunities simply do not exist. When you get a security that you have already determined to be undervalued obviously by the rest of the market, it is always a great time to make your investments.
Warren Buffet once said that he never makes any attempt to forecast the market. He focuses on finding undervalued securities. For him, it simply does not matter what the market is doing. In case you find a stock at a good price, it is always worth buying.
In the short run though it goes down, always trust the research that you have done for getting long-term gains. At the same time, do not ignore the company entirely. You need to ensure that your investment thesis is valid till the time.
Why Should You Not Time The Market?
Some of the best investors in the past never tried to time the market. Throughout their careers, investors like Peter Lynch and Warren Buffet avoided market timing totally. When they are not recommending it, then what is making you think that you can outsmart them?
Rather, Lynch put it a bit rudely that investors have lost far more money in preparing for corrections or trying to forecast the corrections than they have lost in corrections themselves.
Here are some statistics that will tell you why it is a big risk to time the market. In case you have invested all your money specifically in an S&P 500 index fund, and that too at the start of the century, over the next 20 years, you would see an average return of around 6% yearly.
That very period includes the Great Recession and the dot-com bubble. But during that period, in case you are out on the 10 best days for the same index, you could be able to earn only 2.44% every year.
So, you would miss out on almost half of the returns of the same market. Across the 20 years period, you never know when those particular 10 days are going to occur.
But the good thing is that you better have your money working, especially for you, whenever they show up.
Key Factors To Keep In Mind When You Are Investing
Here are some key factors that you need to keep in mind every time you are going to make an investment. So, let’s have a look at all those key factors, which will help you to determine “is it a good time to invest?”
1. Have A Plan
It is crucial to have a plan all the time. In order to determine how you invest your money, there are a few questions that you need to ask yourself.
- What is your time horizon?
- What are you investing for?
- Is it a totally one-time investment, or are you thinking of adding to it on a regular basis?
2. Think Long Term
A pull-back in the stock prices that is short-term will not be able to leave a huge impact on your long-term returns. Certainly, it will not have an impact as big as missing out on just a few of the best days of the market.
Instead of hoarding cash, in case you buy stocks regularly by dollar-cost averaging, there is a high chance that you will do far better than just trying to time the market.
3. Understand Volatility
Every day, the market value goes up and then down. So, there are some stocks, like growth stocks, which are more volatile than others, for example, value stocks. You need to keep this in mind when you are thinking, “is it a good time to invest?”
High-flying growth stocks, which also sink the very moment when there is a hint of trouble, are not at all for everyone. So, choose those stocks that go with your risk profile along with a tolerance for swings in their valuation.
Your investments across several market sectors will help you to eliminate those market forces, which only affect certain industries.
And when you explore across different market sectors, you will be able to get more opportunities for investment in almost any market type.
5. Expect To Be Wrong Sometimes
When you are an individual stock investor, you will not pick winners all the time. That is another reason why you should spread out your investments among different sectors and companies.
And in case your investment thesis turns out to be a wrong one, it is obviously the very time to sell it and then put your money elsewhere to work.
So, if you think that “is it a good time to invest?” then the answer totally depends on you. It is you who will make the decision, but first, you need to determine what you actually want.