When is a good time to invest in the Stock Market?
There is always a good time to invest, although there are better moments than other, obviously.
Everybody who approaches the investing world for first time ask him or herself if it is the right time to invest in the Stock market.
The truth is that there are always many alternatives to invest although simply a few will be the good ones.
A great deal of the offers we see around to “invest in the stock market” are scams. Ideas like “investing in futures, forex or CFDs”. That is not investing in the stock market.
Right time to invest for the long term
Investing in the stock market means that we buy stocks and keep them for a long while whether through direct purchases or through funds or ETFs.
This is what is known as long-term investing.
Once we have that clear we can start talking about the best moment to invest in the stock market.
The moments vary with time.
Depending on when you read this article there will be better options to invest in the stock market.
There are not two moments that are the same.
When we invest focusing in the long term we should not be concerned about the small moves in the short term.
The most important thing will be buying a diversified portfolio of stocks with any of the different strategies, whether it is dividends, value investing or any other.
Unless you are Warren Buffett, it will be very difficult to beat the market after 20 years of investing, but if you do it will not be for a big margin.
So stop dreaming of having huge returns in the stock market.
You should expect a 10 or 12% annual return in average.
We can have two situations when investing in the stock market:
- We have a lot of money for some reason and we invest it at the same time
- We add the same amount of money every year.
Depending on this question we will have different approaches when investing.
The second case is much better since it does not matter how the market is that it will be a good idea to put some money every year in it.
If we invest when the market rises and when it falls we end up doing a sort of average and compensate the bad moments with the good.
It is the other case where we have the problem.
Imagine we win the lottery.
1 million dollars, pounds or euros.
Would it be a good idea to invest in the stock market all that money at once?
Well, you have to be bold to do so.
Those who have a lot of experience in the stock market will always say that the best thing is to invest in stocks since they always rise.
In that they are right.
The best time to invest in shares
The problem is that a novice investor may have some problems getting that advice.
Imagine that a novice investor goes to the market in 1835 and buys the Dow at 22 points.
After a short while there is a major bear market and the stocks fall more than 60%.
Will the novice investor be able to resist the panic and not sell the stocks in the middle of the crisis?
That moment was very difficult, the same as 1929.
Just imagine that in the last case the investor waits until 1860.
Well, 25 years later the Dow was still trading at 10 points, more than 50% below where he bought it in first place.
Although there were good dividends in those years, we might say that the investment was not very good to say the least.
On the other hand if the investor chose to get out and sell the stocks in the middle of the bear market it would have been a disaster.
Cases like this or that of 1929, or Japan in 1989 tells us that there are times when it is not very good idea to invest in the stock market.
Certainly those times are not many and most of the time the stock market is more or less fine.
In fact if in any case as an investor you end up buying a big amount of money just before a major bear market it is always a good idea to keep the investment no matter what.
If, in the worst case scenario the stocks do not rise more it will be due to a worst case scenario like Russia 1917.
But in a case like that you do not need to worry too much since nearly everybody lost everything, whether in the stock market or not.