The best time to buy stocks is a question that I’ve thought about since I started investing. If I had bought Tesla stock one year ago when the price was just over $100 per share, I would have multiplied my money by 5 times. Unfortunately, time travel doesn’t exist so I can’t go back and do anything about it. If time travel did exist, then it’ll probably be illegal to do that.
I’ve been investing for a while now and I’ve seen that some people may answer this question by saying a particular month or day in the month is the best but there isn’t actually any proof that points to any single point in time. That’s because the stock market has both crashed and gone on a bull run at different times over the last 50 years.
On top of that, history is not a good indication of when the stock market will crash again. In this post, I’ll talk about when I think the best time to invest is based on REAL experience, not history. I’ll also talk about what I feel is the worst time to buy and if your should sell your stocks.
Before we begin it’s important to answer the following question: why does the stock market go up and down? The stock market fluctuates regularly for many reasons:
- Changes in government policy
The Brexit deal that was announced was good for the stock market as it increased confidence in the value of the pound against the dollar. This made it cheaper to buy stocks. However, the uncertainty before the completion of the deal had a slightly negative effect as prices of goods and services were rising.
Likewise, when Joe Biden became the 46th President of the USA, he introduced a higher capital gains tax targeting the ultra-rich. Many of these people were investors in the stock market, who when needing to take action can cause waves in the stock market.
Therefore changes in policy, governments and taxes can have both upward and downward effects on the direction of the stock market.
- Markets crash
The stock market has crashed a number of times due to many factors. Covid-19 caused markets all over the world to shut down in March 2020 and although there were rapid increases in the prices of some stocks, the majority fell and some even stopped trading.
Nobody can predict a crash but there are signs that can indicate when the stock market is on a bull run and is overinflated.
- Tweets or breaking news
GameStop exploded after Elon Musk’s famous ‘stonks’ tweet which led a community of Reddit investors to go against some of Wall Streets' top investors. A company that is at a loss was suddenly valued at $10 billion. Some made thousands and jumped off the ship when in profit however others stayed loyal to the cause and still hold stocks.
These are just a few reasons why the stock market fluctuates. There may be many more.
When is the best time to buy stocks?
The market is unpredictable and changes in market conditions can happen at any moment but when is the best time to buy? The answer is simple. It’s every month.
I believe that there isn’t anyone month that is better than another when buying stocks. This is because investing is for the long term and although history isn’t something to be relied upon when making determining what the best month to invest is, we can look over the last 50 years and see that the market has crashed and recovered.
I said above that we can’t go back in time to invest in Tesla stock while its price was low but what we can do is invest in certain stocks now while we can. The common phrase for planting trees also applies to buying stocks – the best time to start investing was 20 years ago. The second best time to start investing is today. and by today I mean right now.
If we look at the history of the S&P 500 we can see that its returns by the year since 1970 have both been positive and negative e.g. in 1970 the annual return was 4.01% while 10 years later, the annual return was −4.92%. In the last 10 years, it has grown by an average of just under 15%.
Are there worse months to invest than others?
Surprisingly the answer is actually yes. Although this may seem to contradict what I said earlier about every month being the best month to invest, it actually doesn’t. Every month is a good month to invest however there are some months in which I would invest but slightly less.
Beginning of the New Year
I started investing because it was a new years resolution in which I promised myself that I would invest to build wealth and hopefully retire early. I can only assume that lots of other people also make similar new year goals. This is also called the January Effect.
I feel this is one of the worst months to invest because newer investors pump more money into the market thus raising the price of stocks. This means that I’m still buying but buying stocks at a premium. Later on, in the year when the stock market corrects itself – this is when people start selling off their shares either for profit or if they’ve made too many losses – I tend to buy more.
In preparation for the January Effect, I tend to buy more in December. Being the end of the year, it's also seen a stock market correction already or if there’s been a crash like the one in March 2020, then the prices of stocks are low.
When should I buy it during any month?
Since every month is a good month to invest, I have found that spreading my buying habits over the entire month is better than buying only at the beginning of the month. Rather I would say that if you’re going to invest, buy when the stock is in red and the price is falling. If by the end of the month it isn’t red and the price is only increasing, then buy your stocks.
By doing this, you’ve continued investing but bought at the best price during that month.
Buying stocks has no formula. If it were possible to determine which month or which day the best time to buy stocks is, then everyone would be buying at those times. That would actually then make it the worst time to buy stocks because if everyone is buying, then the prices of those stocks will go up which means you’ll be lowering your returns.
I’ll leave you with the following two key points:
- There’s no evidence to say that one month is better than another. If you’re interested in growing your wealth over a long period of time then the best time to buy is every month.
- The markets are unpredictable. Nobody knows what will happen tomorrow but you can predict the trends for the long term. Do your research.
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This article is accurate and true to the best of the author’s knowledge. Content is for informational or entertainment purposes only and does not substitute for personal counsel or professional advice in business, financial, legal, or technical matters.
© 2022 Mazaher Muraj