Now Is The Best Time For You To Buy Stocks

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Contents

Is now a good time to buy stocks?

With global stock markets in meltdown at the moment due to the coronavirus, many investors are asking whether now is a good time to buy stocks. Those who have been sitting on cash are wondering if now’s finally the time to put their money into the market. Meanwhile, those who invest regularly are wondering if they should continue to buy stocks while the market is falling.

My personal view is it’s a good time to be investing a little bit of money in stocks (assuming you have a long-term investment horizon), as I expect the stock market to eventually recover from this setback. Having said that, I expect volatility to remain elevated in the near term, so a cautious approach is sensible.

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Is now a good time to invest in the stock market?

As global equity markets have tanked over the last month or so, share prices and valuations have come right down. If you’re a net buyer of stocks with a long-term investment horizon, as I am, that has to be a good thing.

Take one of my favourite FTSE 100 stocks, Sage, for example. Only a month ago, it was trading for around 760p, meaning a £1,000 investment got you roughly 131 shares. Now, however, the share price is just 540p. That means that a £1,000 investment gets you 185 shares. In other words, you now get far more for your money.

It gets better though. As share prices have fallen in the last month, dividend yields have risen. Looking at Sage. A month ago, its trailing yield was just over 2%. Now though, it’s 3.2%. So, not only do you get more shares for your money, but you also get a higher yield, meaning a higher level of regular income going forward.

It’s this extra buying power, and the higher dividend yields on offer, that lead me to believe it’s a good time to invest. Given that the stock market has always recovered from setbacks in the past, I think it’s likely those buying today will be rewarded in the long run.

Will stocks fall further?

Of course, it’s important to realise stocks could fall further from here. Right now, there’s an awful lot of economic uncertainty due to Covid-19. Volatility is also likely to remain very high as it’s an extremely dynamic situation we’re facing.

So my advice, if you’re thinking about buying stocks in the current environment, is:

Average in. This will smooth out your entry points. Have £10k to invest now? Why not invest £2.5k every month for the next four months? That way, if stocks fall further, you’ll be able to take advantage.

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Think long term. If you buy a stock today, don’t worry about what it does in the next day, week, or month. Instead, give yourself a five-year investment horizon. The chances are, in five years, you’ll be happy you invested. And, as always, don’t invest money you’re likely to need in the short term.

Buy quality. Finally, focus on high-quality stocks that’ll be resilient in the event of a recession. This will help minimise risk and reduce the chances of big losses if economic conditions deteriorate further.

5 steps that can help you to stay calm and invest on – whenever stock markets panic…

It’s ugly out there…

The threat posed by the coronavirus outbreak has spooked global markets, sending stock prices reeling.

And with the Covid-19 virus now beginning to spread beyond of China and Italy, it seems very likely that the bull market we’ve enjoyed over the past decade could finally be coming to an end.

Against such a backdrop of market worry, it’s little wonder that many investors are starting to panic. (After all, nobody likes to see the value of their portfolio fall significantly in such a short space of time.)

Fortunately, The Motley Fool is here to help, and you don’t have to face this alone…

Download a FREE copy of our Bear Market Survival Guide today and discover the five steps you can take right now to try and bolster your portfolio… including how you can even aim to turn today’s market uncertainty to your advantage.

Edward Sheldon owns shares in Sage Group. The Motley Fool UK has recommended Sage Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Is now a good time to buy a car?

Seen any advertisements for new cars lately? They probably feature attractive prices and generous financing options. It’s not due to a dramatic change of heart by automakers; trust me, they still want to make a profit. Cars are cheap now because the coronavirus is keeping people at home—and holding off on the plan they may have had to buy a new car.

Car sales are down about 35 percent compared to this time last year—the lowest they’ve dropped since the recession 10 years ago. And we’re still in the thick of the coronavirus pandemic, meaning consumer uncertainty about employment and financial stability isn’t likely to lead to “normal” car buying anytime soon.

Car manufacturers and dealerships are offering myriad deals to try to entice you to buy a car at this time. And even if showrooms aren’t technically open to the public for browsing, there are still options for buying a car.

So how good are the prices?

Well, they’re not so exciting yet—at least, if you’re going by the price tag alone. You might get a better deal right now for your trade-in than usual, or you might find it’s easier to negotiate down from the window price on a car.

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But the real draw: the financing offers.

“We’ve seen a wide range of manufacturers offering financial assistance to buyers, ranging from 0% financing to deferred payments,” said Karl Brauer, executive publisher for Autotrader and Kelley Blue Book.

Brauer said it’s not worth considering buying just for the sake of a deal. But if you’re in the market for a new vehicle, he said the incentives for buyers are “exceptional” right now. “Zero percent financing for six or seven years adds up to real money savings, and deferring the first payment for 60 or 90 days with 0% interest adds to the savings,” he said. Some automakers, like Fiat Chrysler, Volkswagen and Kia are offering both incentives at once, Brauer noted.

The best part about buying right now? You can do most of it from the comfort of your own home. You should still test-drive the vehicle, Brauer said, while still practicing responsible physical distancing. (Dealerships offering home test drives and drop-offs are sanitizing cars regularly.) “Every other component in buying a car can now be done online, including financing, insurance and even signing the final paperwork. Consumers should be able to find a dealer offering all of these services.”

As always, make sure you do your research before you decide to buy. Edmunds, Autotrader and Consumer Reports offer plenty of ratings and reviews, and our friends at Jalopnik always have good advice. Kelley Blue Book is keeping tabs on automakers’ financing incentives and payment assistance programs.

One small upside of these difficult times: Automakers and dealerships aren’t likely to abandon their digital sales tools after the pandemic, which mean you’ll probably need to spend less time at the car lot the next time you’re ready to buy.

Now Is The Best Time For You To Buy Stocks

“Sell in May and go away” is an age-old investment adage, referring to the traditional belief that stocks show weaker performance in the summer, from May to October, and stronger performance in the winter, from November to April. According to the saying, you should sell stocks in spring, just before the summer lull, and buy them in autumn, just before their value rises again. It’s sometimes also called the “Halloween indicator”.

There is a good deal of truth to this. Findings from a 2002 paper showed that this pattern held true in 36 of 37 developed and emerging markets studied globally, and was particularly strong in Europe. The paper noted evidence for it in the UK stretching back to 1694.

The effect may be caused by seasonal fluctuations in optimism among investors.

But there are other adages that suggest investing in other times of the year, like the “January effect” – an increase in stock prices during the first month of the year – or December’s “Santa Claus rally”, a similar boost that has been linked to holiday-season optimism (and Christmas bonuses).

So, what gives? Is one time of year better than the other to invest?

The so-called “Santa Claus rally” is one of many seasonally timed trends in the stock market (Credit: Getty Images)

Seasonal adjustments

Selling in May is not what people actually do.

US and Canadian researchers found that investors are more bullish in spring and cautious in autumn. In the study, the authors looked at how money flows among different categories of mutual funds to find that people are more likely to buy risky assets in warmer months, but are more risk-averse in later in the year, more likely to sell higher-risk assets to buy safer ones.

Some economists argue that fluctuating temperatures, day length and sunlight levels can sway investor behaviour

This springtime bullishness even spills over into the financial media. In a paper published in 2020, two Japanese researchers used a text-mining technique to analyse the mood of newspaper articles between 1986 and 2020. They found increased optimism in the first half of the calendar year, yielding to pessimism in the second half.

The origin of this seasonal mood cycle may lie in the seasons themselves. Some economists argue that fluctuating temperatures, day length and sunlight levels over the course of the year can sway investor behaviour and so move markets.

Lisa Kramer is a professor of finance at the University of Toronto who studies human behaviour and investing. She’s found evidence that there is indeed a seasonal effect on people’s investing habits. She points to seasonal affective disorder – SAD – and how long, cold, dark winters can make people less optimistic about investing.

“People are not often aware that their mood can play into this, but the evidence is pouring in,” she says.

Halloween jack o’ lanterns in Zhengzhou, China. Autumn has seen investor behaviour become both more optimistic and pessimistic in the past (Credit: Getty Images)

An earlier 2003 study by the same US and Canadian authors who identified seasonal investing behaviour also linked seasonal preferences for different investment types to SAD.

Comparing stock market index data from countries at various latitudes with their seasonal daylight fluctuations, the researchers found a so-called “SAD effect” in the seasonal cycle of stock returns that was “both significant and substantial”. Returns were at their lowest in September, rising throughout autumn and peaking just after the winter solstice (late December) before falling again and flattening out over spring and summer.

The results in the southern hemisphere (Australia, New Zealand and South Africa) were six months out of phase with the northern hemisphere, mirroring the seasons. Crucially, the nearer the countries were to the poles and so the shorter their winter days, the more pronounced the winter SAD effect.

“It helps us understand why markets can be so volatile,” Kramer says. “It helps us take a step back from our [emotion-driven] decisions.”

Still, being cautious is not always a good thing when investing. Stable investments like government bonds typically yield lower returns in the long run than riskier stocks with a higher return potential, and over-caution can actually lead people to take larger risks to avoid a loss.

If many investors become more cautious when it’s dark outside and returns are generally lower for cautious investments, why should overall returns then rise in winter?

Because when the cautious investors sell their riskier assets in autumn, the price drops, meaning quality investments can be scooped up for a low price by those willing it to take the risk. Since these quality investments were bought at a bargain, the returns are disproportionately high when the market eventually bounces back at the end of winter, the authors suggest, boosting overall returns.

But, to be sure… there are several caveats.

A currency exchange shop in Pakistan. Depending on where you are in the world, different months have different effects on investor confidence (Credit: Getty Images)

Off the beaten path

Seasonality exists, but it’s just one piece of the investment puzzle.

First, the ‘sell in May’ effect is only one of many seasonal cycles affecting stock prices. Others include the January effect, the holiday effect and the turn-of-the-month effect. These effects tend to be stronger in small-cap stocks (shares of companies with a market capitalisation under $2 billion).

There is seasonality in the stock market, but there have been mixed arguments or evidence about why – Mark Ma

Second, and more importantly, seasonality is only one of many, many factors affecting the stock market. Returns in a given year may deviate substantially from seasonal patterns. Those looking for investment guidance are better off ignoring the thermometer and calling a qualified financial adviser instead.

“There is seasonality in the stock market, but there have been mixed arguments or evidence about why,” says Mark Ma, a professor of accounting at American University in Washington, DC. He gives credence to the SAD effect, but points to a place like “Singapore, where the weather is the same almost all year – around 32 degrees Celsius – but they still found this effect.

I think [daylight and temperature] play a big role in it, but it’s probably not the only reason there is seasonality.”

He mentions a January effect, and how stock returns in January tend to be higher because the tax year ends in December. So, if people have a lot of profits, they have to pay a high tax bill – but not if they sell their stocks beforehand. Their total taxable income goes down.

Ma thinks that there isn’t a fixed window to just invest and profit, and to not bank on any seasonal patterns happening every year.

After all, there are tons of different factors at play, especially with something as unpredictable as the stock market.

The experts say…

Although it’s good to be mindful of seasonality, you should pay closer attention to concrete evidence, like growth potential for a company and how profitable it’s been over the last year, says Haran Segram, a clinical assistant professor of finance at New York University.

“I’m a firm believer in the fundamentals of a stock – the cash flow, the risk and growth, rather than the particular month to invest,” he says.

People do have an emotional connection with money. I tell my students, it’s a patience game – Haran Segram

All the experts interviewed for this piece say to be mindful of seasonality – but the true best thing to do is take less risk. Although short term you might yield fewer returns, that thinking will pay off in the long haul: like slowly squirrelling money away and letting it compound over years.

Segram agrees that, even in depressing winter months, for example, not to allow your investing decisions to be guided by how you feel.

“People do have an emotional connection with money,” he says. “They see that it has the means to their comfort and glory in the future. But people don’t make rational decisions at a time when it comes to money. I tell my students, it’s a patience game.” Kramer agrees.

“Take a holistic view,” she says. “Make regular frequent contributions to your retirement savings. That’s the best approach to success. When we try to outsmart the market, we often end up harming ourselves.”

To comment on this story or anything else you have seen on BBC Capital, please head over to our Facebook page or message us on Twitter.

Is Now A Good Time To Buy Stocks?

News about the Chinese coronavirus three weeks ago broke into the headlines of financial media, making much buzz in world markets. However, in the markets, there is always a way to benefit in the current environment.

Late last month, it was an almost a nightmare, capable of completely disrupting the established economic processes. Hence, the markets, especially Asian, were in near-freefall. The peak of fear was when Chinese markets opened after a long New Year holidays, losing about 8% on the opening.

But Asian markets have been growing almost every day since then, regaining virtually all the decline of early February. Why? It’s all about the authorities’ reaction to the situation.

With Trump as U.S. president, markets have moved to the centre of politics. The stock market became both a judge and a measure of the success of any political courses.

It seems that with a glance at the markets, the Chinese started to act like the US, unprecedentedly injecting liquidity into the financial system and put some restriction for stocks sales. This has become a turning point for the markets. It became clear that no matter what happens, politicians or central banks will be able to solve the problem with money.

Such an approach implies an increased demand for risk assets. It is believed that the so-called “growth” companies are growing the strongest in such conditions. Nowadays, as in the 1990s, these are companies associated with IT and high-tech. Over the five years from 1995 to 2000, the Nasdaq index grew ten folds.

Between five years and 2020, it “only” doubled. So, with current political course in the foreseeable future, such names as Apple (NASDAQ: AAPL ), Google (NASDAQ: GOOGL ), Amazon (NASDAQ: AMZN ), Tesla (NASDAQ: TSLA ) may remain attractive to investors who expect growth in customer base and stocks prices first, and dividends and low price volatility to a much lesser extent.

“The Cherry on top ” is gold . It’s dangerous to bet on it if the collapse of financial markets is expected. It is usually turning to grows after it becomes clear that the global financial system is in safe, and the policies of governments and central banks is enough to put inflation and economy to a growth trajectory.

The FxPro Analyst Team

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