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Best Time to Invest in Stocks

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  • Best Time to Invest in Stocks

    The issue is not really the best time to invest in stocks; but rather the best time to invest in stocks more aggressively. To succeed in stock investing, there are two basic signals you should watch. They can tell you when to invest more heavily in stocks and stock funds... because they are selling cheap.

    Average investors should invest in stocks or stock funds on an ongoing basis, allocating a percentage of their total investment assets to this class of investments depending on their risk tolerance. Sometimes when the stock market makes you the most uncomfortable, it's the best time to invest in stocks and increase your position there. Many investors do the opposite. They sell near the bottom, take a sizable loss, and lay low until the market is well on its way to recovering past losses. That's a stock investing recipe for losing money.

    If you were an investor in 2002 or in early 2009, you know what discomfort and the feeling of financial panic are. It's not easy to force yourself to buy when everyone else is running for the nearest exit. Here are two things to watch for, to give you more confidence in making the decision to buy more stocks when they are cheap.

    First, you've got to follow a stock market major index when a falling market is making the headlines. Either the Dow Jones Industrial Average (the DOW) or the S&P 500 Index will do. If these have been down for one to two years it's time to pay close attention. If they are down 30% or more from the previous high it's time to get ready to buy. When selling escalates and prices then appear to be in a free-fall, it's time to START buying in increments.

    Second, pay attention to the P-E RATIO for the major indexes. This ratio of stock Prices to corporate Earnings, P/E, tells you whether stock prices are cheap or expensive relative to the profits or earnings that justify their value. For example, historically a P-E of about 15 has been normal for our major indexes. This means that the price of stocks in the index is 15 times the earnings per share recently reported by the corporations in the index.

    A ratio of 15 means that stocks are selling for 15 times earnings. As prices fall and/or earnings increase our ratio gets smaller and stocks are cheaper... and when prices rise or earnings fall stock prices get expensive. When the market's P-E gets higher than 20 times earnings it's pricey. At a P-E of 10 or less, stocks are basically cheap.

    The best time to invest in stocks and start some serious buying is when both of the above conditions spell STOCKS ARE CHEAP. When the major stock market indexes have taken a beating and the P-E ratio gets below 10 it's time to buy - not sell stocks and/or stock funds. Keep a level head and buy in increments with a plan.

    Trust me, you'll feel some discomfort. But stock market history will be on your side.

    A retired financial planner, James Leitz has an MBA (finance) and 35 years of investing experience. For 20 years he advised individual investors, working directly with them helping them to reach their financial goals.


    Article Source: http://EzineArticles.com/3524656
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