Putting money into the stock market can strike fear in some would-be investors. Nobody wants to end up buying right when prices peak. Investing amid a market downturn can be even more gut-wrenching. It’s impossible to know whether the worst is over or more losses are yet to come.
So, how do you evaluate when to buy stocks and when to wait for a pullback in the market? The best answer is that you don’t. Both passive index fund investors and individual stock investors will likely be better off consistently buying shares and ignoring the daily ups and downs of the market.Is now a good time to invest in stocks?
If you’re looking to invest for your future — five, 10, or 40 years from now — now is as good a time as ever to buy stocks. Despite ongoing recession fears, it’s important to remember the market is forward-looking.
Stock values are based on future expected earnings. Despite the occasional gross domestic product (GDP) contractions, earnings tend to rise over the long run. That said, there are still good stocks to buy during 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.
Is it better to buy stocks when they are down?
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.
If you’re asking, “Is now a good time to buy a stock?” consider that it’s always a good time to invest when you find a security you’ve determined is 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 your research and buy shares well below where they were trading just a few months prior.
Warren Buffett once said, “I make no attempt to forecast the market — my efforts are devoted to finding undervalued securities.” For Buffett, the question isn’t, “Should I invest in stocks now?” It’s, “Which stocks should I invest in now?”
