As a new investor, one of the first things you’re going to ask yourself is – is now the best time to get started and invest in the stock market? After all, coming in at the right time could mean the difference between either a quick profit or loss. With markets on a steady downward trend through January, more people are starting to wonder if February is going to be a good time to invest.
Understanding Recent Market Trends
Throughout 2013, we were in a bullish market. Just throw your dollars at it because it’s going up no matter what! However, as we watched stocks rise, more bearish investors started to warn that prices were rising too quickly. After all, the price of a stock should match the value of the underlying asset.
If a stock price outgrows the business’ growth, it means the company is overvalued and likely heading for a correction. We saw a good example of this with Twitter in December, when the company was downgraded because it didn’t have the earnings to match the growth of their stock price.
Another thing that’s playing a role in today’s market is the Federal bond buying program, also known as quantitative easing. The idea of quantitative easing is that the Federal Reserve will stimulate the markets by pumping astronomical amounts of money into the “economy” through a bond buying stimulus, therefore increasing liquidity and increasing economic activity. That is a very simplistic explanation of the process, but it will suffice to explain monetary policy in the U.S. for the last few years.
Eventually, the Federal Reserve made an announcement that they would ease up on, or taper, the bond buying program. Some economists explained this step signified that there was so much success in the program, they were able to get rid of it earlier than expected. Others suggest the easing is a reaction to a failing program.
Is It Time To Invest?
As many investors warned, the bullish market could not, and did not, last forever. The reality is the market relies on checks, balances and corrections. Because of that, every trend eventually dies. So, is this going to be a morbid “you lost your money ‘cause you invested” type of story? NO! Actually, it’s important to understand that trends, up and down, do eventually end. Although it might be scary to see a down market, it simply can’t last forever. The truth is…
It’s Always Time To Invest!
No matter if the market is up or down, there’s still ways to make it work in your favor. The earlier you start investing, the longer time horizon you’ll have to work toward your retirement. Waiting too long can mean retiring with a smaller nest egg and less income to live with.
Taking Advantage of Market Conditions
Tip #1: Stick With The GOOG Guys – Nope, that wasn’t a typo. If you haven’t noticed, Google is taking over the world. When we think of them, we think of a search giant, but they’ve grown far beyond that title. Google has their hands in everything from search and mobile phones to self-driven cars and robotics. Throughout the years, Google has been, and will continue to be, a great investment in the future of technology. Similarly, one can say the same about Apple.
Tip #2: Think About Staple Companies – Although stocks might be down now, that’s not a bad thing. This gives you an opportunity to acquire shares in great companies at affordable prices. Think of companies that you know have become staples of society, such as Procter & Gamble, Coca-Cola, Wal-Mart, CVS, Colgate-Palmolive, and Philip Morris (as much as we hate to admit that tobacco is a staple).
These companies will continue to grow as demand for their products keeps up with population growth. And if you can get in when they’re down, you stand a chance of reaping healthy returns over the long-term.
Tip #3: Do Your Research – Before investing in any company in a down market, do your research and learn as much as you can about that company, their operating environment, the opportunities and challenges they face, and their financial stability. Make sure that you’re comfortable with their business model and operations before investing.
Although a 5% or 10% correction can be a scary thought for investors, it’s important to maintain perspective and remember that down markets create buying opportunities. That being said, yes, it is a good time to invest in best-of-class companies.
Author Bio: Josh Rodriguez is a finance professional who currently writes for ModestMoney.com. Check out his comparison of the best online brokers at ModestMoney.com/5-Best-Online-Brokers/, as well as a review of the hottest peer to peer lending company, Prosper, at ModestMoney.com/Prosper-Review-Detailed-Prosper-Lending-Review/.