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When the Stock Market is On a High, Should You Buy?
Your 2-Minute dose of Genius!
Sika Republic
December 05, 2023
The U.S. stock market is riding high, with the S&P 500 rising over 8%, the Dow Jones Industrial Average up by 8%, and the Nasdaq Composite spiking by an impressive 10% in November alone.
As the market surges, this is typically the time when people observe the market going up and decide they want in.
It's an interesting stock market phenomenon, but people often shy away from the stock market when the price is going down, rather than seeing it as an opportunity to buy in.
A time-tested principle of the stock market is to "buy low/sell high." Essentially, this means entering the market when prices are low, holding onto your investment, and strategically selling when prices are on the rise. Just like scoring a great deal in any other aspect of life, you aim to enter when there's a "sale" and exit when profits peak.
One way to rewire your mindset, particularly if you're buying into a stable stock or fund, is to take a look at its 3-month, 6-month, 1-year, or 5-year charts; it will often reveal a pattern of rises following falls. So, investing in established stocks or index funds during low points can, with patience, likely lead to a bump back into the positive if you take your time and wait.
Now this rule doesn't universally apply, especially to trendy or overhyped stocks solely driven by market or media buzz, or those which are clearly on the decline. In this case it's crucial to understand what you are investing in and why. As a new investor, you’ll want to steer clear of those types of investments, or seek advice from a qualified financial advisor before dipping your toes in.
You might be thinking that when a stock starts surging higher, it's only going to become more expensive, so you want to get in while you can still afford to. Yet, a quick analysis of a stocks chart, easily accessible through a simple Google search, can unveil trends. While some stocks may sustain high values for a considerable period, that's the exception rather than the rule, most follow a cyclical pattern.
So, if you are investing for the long haul, don't lose sight of the time-tested rules - stay patient, invest in what you understand and can afford and don't be afraid to seek professional financial advice when you need it.
Today’s Takeaway:
When the markets are on the rise, it can be tempting to jump in, but by taking a measured, informed approach ensures that you're making investment choices that align with your financial goals, not based on FOMO, for now and also for the long term.