Are you thinking about buying stocks but you’re unsure of when to actually do it? If so, don’t feel discouraged, all you have to do is build an understanding of the way the market works. Keep reading for the 5 main factors to consider before investing in stocks.
Seasonal Trends vs. Market Timing
Before making an investment, it’s important to grasp the concepts of seasonality and market timing. First, seasonality refers to predicting the market during a particular time or month. If you predict the state of the market, you can either make a move so you gain from it or avoid loss. Market timing, on the other hand, refers to making a prediction about the direction that the market is heading in based on economic and financial data.
Summer vs Winter
According to S&P data for average monthly returns, September is considered to be a down month, while returns are significantly higher during the summer and at the end of the year. If you are an investor looking to take advantage of seasonal trends, you could buy stock in September for low prices, and then ride out high returns in October.
A lot of investors return from their holidays in January itching to make purchases, therefore, buying up value stocks, or even penny stocks, in December is a great way of taking advantage of seasonality. If you buy stocks for low prices in December and then buying fever in January pushes up prices, you have a good chance of profiting off these stocks come January.
That said, it is considerably difficult to predict how the market is going to be at a certain time, so make sure you do enough research and prepare a bulletproof plan.
Seek Out Tax Losses
If you have lost money during the year, you have the option of seeking out tax losses in the following year’s tax returns. This is done by selling negative stocks in late December. If you want to do something similar, you should try selling your under-performing stocks in late November or early December.
Holiday Season
During the holiday season in the United States, you will see a lot of trading happening. Though it can be tempting to join in, make sure you consider the fact that you will be charged a fee for every transaction that you make. Additionally, these fees tend to outweigh any profit.
Mondays
Due to the natural slowness everyone experiences returning to work on a Monday, you will notice that Mondays are considerably slow for the market. Additionally, companies tend to release bad news on a Friday, so you have the weekend to let the information soak in. However, companies don’t realize that this makes investors timid on the first day of the next week. Also, stock splits are more common to occur over the weekend.
Despite their being certain trends that help investors make purchases, there is no ‘perfect’ time to buy stocks. Really, all you can do is keep an eye on the market and make well informed decisions before you invest.
Featured Image: depositphotos/keport
