This article is sponsored by eToro.
If you’re looking to get a start in investing, there are probably a few questions you’ve asked yourself. Have you saved enough to start investing? What type of shares are most effective to buy? What service will you use to buy shares? These are all important things to consider and research before taking the leap.
Since the stock market continually ebbs and flows throughout the year, you’ve probably also pondered whether there’s a best time to buy shares, too.
According to eToro‘s Market Analyst Josh Gilbert, beginner investors can use a plethora of strategies to make informed decisions when investing, especially pertaining to timing.
“While many investors go to a lot of effort trying to time the market, picking the best time to get into the market might be difficult,” Josh told Lifehacker Australia.
There are no hard and fast rules when it comes to choosing a time of year or month to buy shares. However, there are ways in which investors can use time to their advantage to help maximise the success of their investments.
What sort of strategies could be beneficial in this instance?
According to Josh, investors can use a strategy known as ‘dollar cost averaging’ as a means to keep their investments consistent over time.
“This works by investing smaller, fixed amounts regularly over an extended period of time, rather than investing all of their capital in one go,” said Josh.
This allows the investor to buy more shares when prices are lower, and fewer shares when prices are higher. Platforms like eToro make it simple for beginner investors to do this, allowing you to invest small amounts of money over extended periods of time.
A few other theories floating around the internet take a stab at explaining why share prices may rise or drop throughout the year. For example, the “January effect” often refers to an increase of stock prices towards the beginning of the year while December’s “Santa clause rally” is often linked to Christmas shopping booms. However, if you’re looking for a safer bet, investing small, consistent amounts of money into different types of stocks over the year could be more beneficial—especially given the unpredictability of 2020.
How can investors predict how their stocks will perform over the year?
Buying shares is one thing, but tracking its growth or decline over a year is a whole different story.
While investors can use historical data to help them predict the future path of their stocks, it may not always be entirely reliable in predicting performance.
According to Josh, investors can use this information to “determine the risk and length of their investments” instead.
“Investors may also use fundamental analysis to research how a stock may perform in the future from analysing its outlook from a companies financial report,” he added.
Should Aussies be investing in shares locally or internationally?
Lastly, Josh also recommends that investors avoid restricting themselves to local stocks, as investing overseas can provide “exposure to global economies” and diversify your portfolio.
“Most stocks are listed on regulated exchanges, and even companies from other countries can list on, for example, the US stock exchange,” said Josh.