This is the biggest question, everyone wants to be able to build and sustain wealth for an extended period of time and that is possible through investing. However, wealth creation is less so timed than it is about consistency. So rather than thinking “when is the best time to invest” we are going to reinvent the question to “when should I be investing and for how long”. The motto for long-term investors is “time in the market, rather than timing the market”. We are currently in such a market condition that investors will find a lot of opportunities for a large market reversal and generational investment opportunity. That is more regulated and better than that throughout the COVID drop. This one will be less artificially inflated in a sense.
Why Is Timing the Market Difficult for Inexperienced Investors?
Timing the market is not an easy thing to do, not even the most experienced traders, investors, economists, and analysts can consistently find market lows on each sell-off. Meaning it wouldn’t be really hard for the common investor to do the same. There are tools to use and metrics market participants can take into account to locate the bottom within a 5-10% area and that is considered to be a really good outcome.
With this in mind, we have to take into account human emotionality. This is what runs a lot of the market moves, from euphoric buying to panic selling. When the market is dropping like a rock, the common investor doesn’t think to buy into quality names for the long term. Rather they think “I don’t want to buy and the price to drop even lower”, while in a 5-10-year period the price will have been much much higher than the original entry.
Conversely, the common investor would panic and sell if they hold a position and they see the whole market tanking. Often for a loss. So how do you fight this urge to sell or not get into the market?
The main concept is understanding the saying “it is about time in the market, rather than timing the market”. If you have a longer holding period as an investor you are expected to do better than investors and traders who are inexperienced and constantly get in and out of the market. Especially when you buy quality names and ETFs for the longer term.
Just take a look at the chart below, is the SPY ETF or the S&P500 ETF. There are many periods of large drops in the market, but overall if you have held this whole time, the investment would have gained 300% in value.
So, how can you find areas to buy? How can you find the “right” time to invest?
How Can You Identify When Is the Best Time to Invest?
The short answer is a long-term investor, whenever you have money, can be considered the “right” time to buy. This is because of a phenomenon known as “compounding gains”. Over a longer period of time, your money will grow with reinvested gains. A larger amount of money will grow dollar-wise larger than a smaller investment.
Meaning as a long-term investor you can take multiple approaches to the “right” time to invest.
- Based on monthly or quarterly addition into your portfolio
- Based on valuations, no matter which way you might find them (P/E ratios, etc)
- Based on market internals (breadth, sector rotation, order flow)
- Based on corrections, adding small amounts each time you get a 10%, 20%, 30%, etc drop.
Why Is 2022-2024 an Amazing Opportunity for Long-Term Investments?
We have been in a bear market since late 2021, the market internals shift aggressively and overvaluation in the markets plagued investors since the artificially inflated asset prices. Not to mention inflation increasing with the flood of money in oil and energy. There were many signs that the turning point was around the corner.
So what does this mean? This means that there will be a generational dip-buying opportunity, between the end of 2022 and potentially into 2024. Without getting too much into the macros of where we expect the “bottom” or “capitulation” to be, each weekend we do a video which we title “MAL” that tracks the market and explains these types of events.
The lower end of the recessionary area expectation is somewhere between 3000-3200 on the SPX. This is the green box is the area where I would expect to see some capitulation for a starter position into the longs. Now prices can go lower depending on macroeconomic conditions. The thing about these dip buys, investors shouldn’t throw the boat at one level and hope for the best. Additions and smaller ones on the way down can create a really good average cost.
Should you buy just anything in dips? Probably not, there are valuable assets, dividend assets, growth assets, bonds, etc. It really depends on the portfolio, your goals, and asset allocation.
What Stocks and Assets Should You Look to Invest in after This Market Crash?
In a long-term portfolio situation when an investor gets a chance for a generational dip buys, not all assets are a good game, unless the Fed floods the market with money. Considering we are not financial advisors, you should do your due diligence before investing and entering the market.
That being said, mega-cap blue chips, value, and ETFs are usually places where large institutional money parks their cash for the long term. VOO is the Vanguard ETF for the overall market. Other names of interest include AAPL, MSFT, GOOGL, AMZN, NVDA, BRK.B, AXP, JPM, and so on. For longer lists and ideas, check out the TRADEPRO Academy discord group.
Remember, constructing a portfolio isn’t just picking your favorite names, it’s about asset allocation and meeting your financial goals.
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The information contained in this post is solely for educational purposes and does not constitute investment advice. The risk of trading in securities markets can be substantial. You should carefully consider if engaging in such activity is suitable for your own financial situation. TRADEPRO AcademyTM is not responsible for any liabilities arising as a result of your market involvement or individual trade activities.