Investing 101: What’s the Best Time of Year To Start Investing?
If you’re just starting to invest, you’ll want to learn how to put your money in at the best possible time. Of course, the stock market being what it is, there will never be an exact moment when things are perfect — and even if there were, mere mortals would never be able to consistently select when that is.
That being said, there are a few strategies you can employ to increase your chances of investing at a good time. Here are some of the best.
Best Seasonal Period of the Year
Statistically speaking, the best period of the year in terms of historical market returns has been from November through April. This statistical anomaly has given rise to the oft-quoted Wall Street axiom of “sell in May and go away,” as the May to November period has historically been the weaker half of the year.
Of course, as with any stock market statistics, this period of outperformance is only “on average.” There have been plenty of years when the best months of the year have fallen into the May to November period instead. But if you’re a player of long-term averages, there has been some statistical truth to the notion of sitting out the summer and fall periods in the market.
After a Major Correction
Even when the seasonal pattern of the stock market is working in your favor, the outperformance is generally only a few percentage points at best. To maximize your investment returns, a better time to start may be after a major correction — or in the midst of a bear market.
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By definition, a correction or bear market means that the market is down by 10% to 20% or more. While past performance is no guarantee of future results, for all of recorded history, the stock market has always ultimately recovered from selloffs and gone on to make new highs. If you’re a believer in this long-term consistency, picking up an S&P 500 index fund when the market has tanked can be a great time to start investing.
On a Regular Basis
If you choose to wait to invest until a specific time of year, or after a market drop, you’re effectively timing the market. While easy to do on paper, this can be a hard strategy to follow consistently over the long run.
Many advisors suggest that the best time to invest is now, and the second-best time is tomorrow. By investing regularly, not only will you remove emotion from the equation, you’ll also ensure that you’re invested for the best days that the market has. You also won’t be subject to any seasonal market biases — which may come or go — or be tempted to sell out your holdings if you buy into a bear market and see it continue to fall.
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