Back to school season may mean back to market season
The summer is coming to an end, and for students across the country, it’s time to get back to school. For the rest of us, it’s time to switch our brains from thinking about barbecues on beaches, drinks on patios, and vacations far away, to reality. Coincidentally, it’s also a good time to look into your finances. More specifically, it’s time to start thinking about investing.
Is it possible to time to market?
Short answer, no. It’s generally never advisable to try and time the market. If anyone tries to tell you that they can time, or predict the market accurately in any way, stay far, far away from this person. When it comes to performance of single companies, there are too many variables that could occur. Take for example the recently booming marijuana companies in Canada. Due to a legislation change making marijuana legal, the industry boomed. Yet, in the recent months when the new-found hype has died down, the interest largely went away, and the stock prices of these companies fell back down.
Another example is Bitcoin, or crypto currencies in general. (You can read more about them here) Near the end of 2017, crypto saw a meteoric rise, and then a huge drop followed immediately after. In December 15, 2017, one bitcoin reached a historic high of $17,900 USD. As of December 22, 2017, it dropped to $13,800. Then as of February 5, 2018, it dropped to $6,200.
These are just some examples of the possible volatility in the market. There is no reason nor rhyme, and the only in hindsight, are we able to glean some understanding of what happened.
Solution: Look at market trends, and diversify
Although we can’t hope to time or predict the market, we can look at the past performances of the market and analyze the data in order to help us, and give us an idea of what may happen to the stock market in a general way. Here are some generally agreed upon trends that have been shown to be true over the past century’s performance of the S&P 500.
1. September is a month that consistently sees a flat or declining market in the past. We all know that the key to making money is to buy low, and sell high. If market prices are falling in September, it may be a good time to buy.
2. The last quarter of the year (October – December) tend to yield strong returns. When combined with point number 1, this makes investing at the end of September a potentially good idea.
3. January effect: January tends to have a stronger return than the average of all months combined. Thus, another good time to buy would be the end of the year. This will also provide an alternate advantage in that many investors try to sell off their holdings that weren’t making money. This ensures they can claim capital losses on their taxes. Thus, it’s possible to find some good dips in prices for you to buy in.
4. Most importantly, diversify! Market trends are indicative of the stock market in general rather than a few individual stocks. In our case, we are talking about the S&P 500, which is an index composed of the largest 500 companies listed on the New York Stock exchange. Without diversification, the data we see from market trends become much less useful. Many people these days are turning to Exchange traded funds (ETFs) which essentially offers the full gamut of diversification in addition to being low in fees, and high in liquidity, just like other stocks.
Past performance does not indicate future performance
Despite the best efforts of many people since the inception of the stock market. No one has been able to successfully predict investments. Even with the help of looking at these general historical trends, the best we can do is take it as a suggestion. However, one thing is for certain: Investing your money at least gives you the potential of growing your money, versus just letting it sit there in a simple savings account. So, rather than guarantee that your money is slowly trickling away, make it work for you by investing it!
Note: Flexfi inc. is not a financial advisory firm, and the contents of this article should be read for informational purposes only.