When Should Investors Buy Shares?

Many savers understand that shares are a good investment, but still hesitate before making their first purchase.

The stock market can move upwards and downwards at a frightening pace – they’re certainly risky investments over the short term. When watching from the sideline, with a pile of cash at the ready, investors ponder: ‘Is now the right time to invest?’

In this article I will give my own personal answer to the question of when is the right time to invest in shares.

This article applies regardless of whether you’re using a stocks and shares ISA or a general stockbroking account.

At what stage in life should I invest?

The commonly accepted wisdom is that you should invest as early as possible.

Don’t wait until you feel financially ‘comfortable’. If you defer investments until you have a cushier job with a larger income, you may never make an investment at all!

The more we earn, the more we spend. As such, it’s quite possible for you to always feel like it’s difficult to build a pot of cash ready for investing.

Investing at a young age allows you to benefit from the power of compounding over long periods. As retirement planning books will make very clear – if you delay until you are 55, you may have to save your entire income every year to be able to build up a sustainable pension pot.

If you put away a smaller proportion of your salary (e.g. 10%) from the moment you begin your working career, you have the potential to save over a million pounds by the time you retire.

What time of the year is the best time to invest in shares?

There is no ‘perfect month’ to invest each year. This will never be the case because of the way markets work.

If statistics revealed that December provided a superior return, savvy investors would buy shares each year in anticipation of that month.

This surge in buying activity would lift prices, making any shares purchased in December poorer value for any December investors. Thus, as soon as the December month emerged as the right time to invest – its edge would be completely eroded.

This case carries a silver lining, that any month is an equally attractive moment to invest in shares. This gives investors the confidence to make investments on a monthly basis, often via a regular standing order.

When is the right time to invest in the economic cycle?

You might assume that the best time to invest in the stock market is when the economy is booming. Positive headlines and surging economic growth often do side by side with stock markets breaking records – but investing at the height of a boom carries risk – a recession may not be far away.

With hindsight, the best time to invest is at the height of a recession – when expectations about the future prospects of companies is at its gloomiest. During these turbulent economic periods, companies can be snapped up at (what is later seen as) bargain prices.

If you’re interested in the boom and bust cycle of the economy, consider checking out the best economics books.

The big problem is that it’s easy to say when you should have invested, with the benefit of hindsight. When you are actually living through an economic cycle, you do not have the same context to help you understand whether you are at the bottom, or close to the peak of a cycle.

It’s therefore easy to say ‘I will invest at the bottom’, but incredibly difficult to execute this strategy. You will often only know if you picked the right moment when looking back 5 years later.

The same issue applies to the question of when is the right time to sell shares.

Again, on balance it is simpler and less stressful to take the view that there is no perfect time to invest. If you put away an afford you can afford on a regular basis, you might not be placing it in at the ‘perfect time’, but you are getting it in as early as possible.

This means that your money will be invested as long as possible, and will see a greater benefit from compounding. After all, if we should invest in stocks and shares as early as possible in our lives, then surely putting off any investment in the hope of better conditions down the line, will increase the age at which we finally join the investing game.

Here are some other useful share investment questions I have answered in other posts:

If you have a question about investing in shares or building a share portfolio – leave a comment below and I’ll create an article tailored to your preferred topic. Alternatively, visit our listing of the best stocks and shares books.

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