When’s the Best Time to Buy Stocks?

"Should I Buy Stocks Now?"

Most investors want to know. The challenge is that some of the market’s biggest gains can happen unexpectedly. According to American Century’s Time Tested Strategies, missing even 10 of the market’s best days can hypothetically cost you tens of thousands of dollars over 20 years.¹ You may also miss out on the power of compounding.

The Investing Question We Hear Most: When?

Still, when is the best time to invest is one of the most common questions we hear from clients—especially when markets become more volatile, or the economy is marked by uncertainty. While it may sound like a market-timing question, we think there’s something deeper at play, and it could be investing jitters.

When markets are under pressure, investors may fear a recession. And if a correction occurs, as it has about every two years,¹ this question may be even more prevalent.

Let’s examine how financial consultants Kyle Ray and Kory Klossner answer clients' questions about whether to buy stocks now and how it’s never a “yes” or “no” answer.

Why? “Without context around a person’s investment objectives, tolerance for risk, investment horizon, income and liquidity needs, it’s impossible to answer that question effectively,” says Kyle. “There’s so much more that plays into when to buy and how much of a stock allocation you should have for your long-term investment plan.”

In general, here’s what we want clients to know about investing in stocks at any time, even when markets turn volatile.

First Things First: Stick to Your Long-Term Investment Plan

Ultimately, we believe your stock buying and selling decisions (or plans for any asset class) should be guided by a long-term investment plan that’s appropriate for your age, wealth, comfort with risk and goals.

“When people have a financial plan, it puts what’s happening in the markets or the economy into the right perspective,” says Kory. Clients who are comfortable with their financial plans are typically not the ones calling to ask when to get in or out of the stock market. “They already know that market volatility is accounted for in their plan.”

Your financial plan also guides your allocation decisions—the percentages of each asset type you should hold. The plan can help with other considerations as well, such as when to rebalance if market activity has changed the amount of risk in your portfolio and you need to return it to your original risk target.

“Note that if you’re in one of our managed portfolios, our investment professionals take care of the rebalancing for you,” says Kyle. “Our goal is to keep the portfolio at its intended risk level, which means investors don’t have to worry if the portfolio is now too risky, or not risky enough, to help them reach their goals.”

Should You Buy Stocks During Market Volatility?

Some investors might be tempted to sell during volatility, but that’s the opposite of “buying low, selling high.” If it fits your plan, buying stocks when equity markets are low may actually be beneficial. Factors to consider include how long you will hold the investment, whether the stock is likely to rise in value over time, and whether it fits within your personal risk tolerance.

Down markets might also be a good time for other strategies, such as Roth IRA conversions or tax-loss harvesting. For conversions, if you’re exchanging from a traditional IRA to a Roth IRA, you are moving more into an account that offers qualified tax-free withdrawals down the road—when you’re 59½ or older. During a market bounce back those shares may be able to grow into a potentially favorable range, but in a Roth this time. Note that converting from a traditional IRA to a Roth IRA is a taxable event.

“Using a tax-loss harvesting strategy when markets are down allows you to offset realized gains from another investment with a loss, potentially helping with your tax bill,” says Kyle. Of course, you must adhere to the rules, including the IRS’s wash-sale rule that prohibits investors from creating “artificial losses” by selling securities at a loss and buying a substantially identical security within a certain period.

Buying Stocks in Volatile Times: When It May Be Right

For those with a long-term investment horizon and a higher tolerance for risk, buying stocks during volatile times may be a good choice, with some considerations. If you have a shorter timeline before you need the money from your investments, you may want to consider how much stock allocation you actually need in your portfolio. As you get closer to your goal, you may want your portfolio to be more conservative and less risky.

“The most paramount situation for purchasing stocks during volatile times is your time horizon,” says Kory. “For someone who has a five-, 10-or 15-plus-year time horizon, equities may be appropriate, especially if we’re thinking about someone who is sitting in cash.”

Investors with longer time horizons may need the kind of growth that stocks have historically produced, and their investments may have more time to bounce back if there’s another downturn ahead.

Buying Stocks During Volatility: Consider Averaging Into the Market

“We’re not advocates of wholesale stock purchases," says Kyle. "Instead, it may be a good time to average back into the market. We don’t believe it’s possible to identify a ‘perfect’ entry point to purchase stocks.” It may be beneficial for investors to partition their available investment funds and invest regularly over a set period.

He continues, “And it can help you purchase more shares when stock prices are lower and fewer shares when they are higher.”

Dollar-cost averaging can also help you stay invested during tough market conditions. “A systematic investment approach like this helps keep your emotions in check, while smoothing the effects of volatility on your portfolio during turbulent times,” says Kyle.

When Trying to Time the Market Can Backfire

While some people get lucky, no one has ever reliably predicted the best time to get in and out of the market. Getting the timing wrong—for buying or selling—can have a disastrous impact on your portfolio’s returns. That’s another reason our consultants advocate for a long-term, diversified approach.

That approach should include a mix of investments to give you a better chance of riding out the volatility. “Even in down markets, investors who have a diversified portfolio can still be realizing gains from other areas that are performing better and offset losses from somewhere else,” says Kory.

He also reminds clients that down markets may not affect investors as much as they might think. “Even though they may see a loss on paper, it’s doubtful they'll feel the full force of it because investors rarely withdraw all their money at once. Keeping it invested can help investors take advantage of a recovery in the market.”

Should You Buy Stocks When Prices Are High?

We’ve talked about strategies for investing in stocks when markets are down. Let’s look at buying them when markets are high, and stocks seem expensive or are highly valued.

When the stock market is hitting new highs, investors typically have one of two reactions: get in on the opportunities or be wary of the next drop. Some may wonder if they’ve missed out on the opportunities, while others worry about valuations being too high.

“Investing in high markets often implies that the market is overvalued,” says Kyle. “Anytime the market hits a high, it is technically a high market.”

He goes on to say, “Investors typically look forward six to nine months. If they expect things to get better, the market tends to rise. Even if you bought at the worst time, like before a market selloff, it is all about the waiting game until recovery. The longer the client is in the market, the less the timing of any single investment tends to matter.”

What High Valuations May Mean for Investors

Valuations don’t tell you what the market may do next month or next year, but they can influence expected returns over the next 10 to 15 years. Buying at market peaks also runs counter to the idea of “buying low and selling high.”

“While high valuations may suggest a lower long-term return expectation, they don’t reliably predict that a market decline is coming or suggest an investor should sit on the sidelines either,” says Kyle.

“During periods of higher valuations, it may be more effective for investors to focus on their long-term goals and invest regularly than to wait for valuations to come down,” says Kory.

“Other options may be to look into value investments—those that are considered good quality stocks that are selling at a discount,” says Kyle. “Regardless, like with down markets, a diversified portfolio that can help you potentially get opportunities from many different market cycles is still one of an investor’s best tools.”

Considering Stocks Now? You Can Ask for Help

There are pros and cons to purchasing stocks during volatile times, and ultimately, it comes down to what’s right for you and your goals.

Because the stakes can be higher, you may want to consider speaking to a financial advisor before you make your next move.

Asking an advisor can help during volatile markets in more ways than you might think. Things can feel different when you experience volatility, but an advisor can help you think through strategies to know when it may be the right time to make a position move or how to mitigate taxes in the process.

It's important to find someone you feel connected with and let them help you make those decisions, and create a financial plan if you don’t already have one.

"You should also seek out an advisor who is a fiduciary, like we are," says Kyle. “A fiduciary advisor is obligated to put your needs first.” Also, remember that all advisors make product recommendations, but you may want to consider those who don’t get fees or commissions based on what products they recommend.

“We aren’t commission-based here,” he says. “And I think that keeps our clients more open to the possibilities in the products we do recommend.”