We’ll start with a given: You can’t time the market. But that doesn’t mean you can’t do some proactive planning before the market inevitably falls again.
What do I mean by that? Besides taking, ahem, stock of your investment and retirement plan and perhaps moving a bit more to cash if you’re really worried, consider which stocks you’d want to scoop up during a “fire sale”. That is, when share prices fall.
Here’s an example of some of the hottest stocks last year, from the aftermath of the financial crisis, from The Motley Fool (in US dollars):
Naturally, we all wish we had the foresight to invest in Apple and Amazon back then, and you’ll never know when prices are going to be at their lowest.
But thinking now of companies you believe in and would invest in for the long term could be a good strategy for buying during the next market decline. It’s similar to the advice that the thing to do during turbulent times isn’t to pull your money, but to put more in, except you’re thinking strategically, now, of your stock wish list.
Here’s some advice on when to buy:
- When the price hits your established range of prices (so, not a single price point, but within a range you’ve set for yourself): According to Investopedia, “analyst reports are a good starting point, as are consensus price targets, which are averages of all analyst opinions. Most financial websites publish these figures.”
- When you’ve done your homework and are comfortable with your choice: Arming yourself with information about a company is the best way to decide if you think it will make a good investment. You can look at blue chips (such as Coca-Cola) or tech companies with staying power. Make sure you read the company’s annual report, news releases, take a look at its P/E ratio and so on, all of which is widely available online with a quick Google search. Nothing will 100 per cent guarantee that you’ll do well for yourself, but the more information you have, the better.
It’s important here to note that the best way to build wealth is to invest consistently over time in a diverse assortment of low-cost ETFs/mutual funds. So I’m certainly not suggesting to make your entire investment plan to catch the market when it’s at its lowest and buy only companies you’re sure will succeed in order to become a millionaire and/or retire comfortably. That isn’t possible.
As The Motley Fool notes, “over the long run, the stock market is an incredible creator of wealth regardless of when you get in.” (Emphasis theirs.) And no matter what you do, you’re going to need to pad your investments with plenty of diversification.
But if you have some money to play around with or would like to make investing more of a priority, start doing your research now, and figure out what you’d buy and in what range.