The market is completely nuts right now. From our most recent market drop towards the end of March, triggered by the pandemic here’s the performance of a few stocks: Apple is up 75% Amazon is up 79% Tesla up 284% Facebook up 64% Chipotle up 122% Wayfair up 895% Of course, there’s the flip side […]
The market is completely nuts right now. From our most recent market drop towards the end of March, triggered by the pandemic here’s the performance of a few stocks:
Apple is up 75%
Amazon is up 79%
Tesla up 284%
Facebook up 64%
Chipotle up 122%
Wayfair up 895%
Of course, there’s the flip side to this, companies that haven’t recovered yet. Airline stocks, Disney, Coke, Under Armor, and many more still struggle to get back in the green for the year.
With so many of the common names hitting such high prices, how do we decide what to do with our money? Is now a good time to buy stocks? If so, how do we figure out what to buy?
If you are looking to make quick amazing returns like the ones mentioned above, that’s pretty unlikely. In order to see huge profits like that in a short time frame, you have to find the courage to buy when others are selling. It’s incredibly difficult to buy when the market is down. Our natural thought is to let it drop further and then we will buy, but the obvious problem with that is, determining the lowest the stock will get to. We just don’t know until the opportunity has passed. Then we look back and think “Dang, I should have bought! I’ll buy when the market drops again” but this starts the cycle all over again and you will be faced with the same problem during the next drop.
There are people on the other hand that make the decision to buy and then more and more people start buying because no one wants to miss out on a stock that is running rapidly up.
Here is a chart that shows a great explanation of the emotional rollercoaster that nearly everyone goes through.
The only way to avoid this rollercoaster of emotions is to create an investment plan and stick to it. Figure out how much money you can carve out of your budget for your future and start to invest that amount on a regular basis.
This will allow you to buy at all different price points and over the long run, it won’t matter what happened on any given day, week, or month. If the market drops, you’re buying, and if it’s up you are also buying.
Going back to the original question, is now a good time to buy stocks?
I wouldn’t dump everything into the market at once if you are sitting on a pile of cash, but I also wouldn’t sit and wait for the right time to get in. That will loop you into the emotional investing rollercoaster that you must try and avoid to keep your sanity.
If you do have a chunk of cash, you can start by dividing that into smaller amounts that you’re comfortable with like if you have $50k to invest, you can break that into $10k/month over 5 months. This is called “dollar-cost averaging.” If the market keeps rising over those 5 months, then you may regret not putting it all in at once, but if the market drops, then you will be really glad you didn’t put it all in because now you’re able to buy in as prices are getting cheaper.
Taking all of this into consideration, focus on why you are investing. It should be for the long term growth of your money. This is where the stock market shines. “Time in the market” is more important than “timing the market”. The chart below shows us the longer we invest, the lower the risk of losing money actually is. The yellow represents times you lose money and the red shows times you have made money. Over a long period of time, the risk of losing money goes to a very small percentage. This is why it’s so important to keep the money you need in the short term out of the market and the money you do invest, remember that it is for your future, years out.
Even though we see some stocks that have had massive runups, if we take a step back and look at the market overall, we are just near where we were earlier this year. Which was at incredible highs too, so the question is to ask why you’re investing and for how long. Growth over time? Invest. Quick profit or short term gain? Hold off or be really cautious and selective. Take a look at this video if you want help with researching and buying stocks.
Investing in the stock market over time is a great way to build long term wealth. You need to remember that in the beginning of your investment journey, the majority of your accounts’ growth will come from your own deposits. Later you see larger growth from your portfolio’s actual investments due to compounded growth. Take a look at this calculator and enter your numbers to see the results for yourself.
When it comes to investing, no one has the answers even though many people will claim to. Take their guidance with caution, focus on your goals, and stick to a plan to keep you from the cycle of the emotional investing rollercoaster.