One of the biggest challenges of investing in the stock market is understanding when it’s the right time to buy. That is particularly true in recent years, where the stock market has been somewhat volatile but has also reached what seem like nearly daily record highs.
If you’re sitting on the sidelines either waiting to invest at all, or you’ve had your eye on a particular stock, you’re probably wondering when to jump in. As with most things in business and the economy, timing is everything, and below are some indicators that can help you determine the right time to make a purchase.
Understand Reasons a Stock Is Moving
Stocks move up and down daily, as do the broad indexes. There are many reasons an individual stock, a mutual fund, an ETF or an entire index may be on the upswing or decline. It’s important as an investor that you’re able to determine which are rational and which aren’t.
Some reasons a stock might go down include a rumor, or a big new story impacting prices. This can be a good time to buy, because it’s likely just a knee-jerk reaction, as long as the fundamentals of the business remain strong.
However, if you’re looking at a stock and it seems to be at a low price point, you need to look at the core elements of the business and make sure they’re not the reason for its decline.
Following a Crash
If you had invested after the Great Recession, you could be doing pretty well right now, since the markets have hit record highs. However, many people are too afraid to buy right after a crash, even though these are the times when you’ll find the best deals. The market will inevitably go back up if you have the financial ability and the stomach to wait it out.
Evaluate Your Time Frame
If your plan is to be a long-term investor, you have more leeway regarding when you buy, because ultimately, you’re more than likely going to be seeing substantial returns no matter the price you pay. As a long-term investor, in most cases the sooner you enter the market, the better.
Stocks will go up and down, maybe significantly, in the short-term but over the long-term, you’re almost always going to see positive returns, as long as the fundamentals are there. If you have a long horizon ahead of you’ll before you need the money you’re investing, most analysts would say the right time to buy is ASAP.
As a final note, trying to precisely time the market is difficult and often impossible. If you’re worried about timing or knowing when to buy or sell, your best bet as an investor might be robo-investing. With a robo-investing platform, you simply add money to your account, and then it’s automatically allocated and rebalanced based on advanced algorithms and proven investment theories. This takes the element of timing out of the equation for you as the individual, and a lot of new investors find this approach gives them peace of mind.