The market is rallying, with all three major indexes climbing and top stocks such as Amazon (AMZN 0.75%), Tesla (TSLA 15.31%), and Apple (AAPL 2.48%) leading the way. These industry leaders and many of today's other best performers suffered last year, as indexes wandered into bear territory. In spite of this year's gains, though, we still haven't reached that phase of expansion we're all waiting for: the next bull market.
At the same time, economic woes such as high prices still are weighing on consumers and businesses -- an element that could hold back spending and put a dent in corporate earnings, therefore weighing on stock prices. And as we step into December, many people are thinking more about preparing for the holidays than investing.
So, even though recent stock market gains are a reason to cheer, should you really invest now -- or wait until the new year? Let's find out.
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The Santa Claus rally
The whole month of December doesn't necessarily follow any sort of trend when it comes to gains or losses. For example, December brought the S&P 500 index a loss of about 5% last year and a gain of about as much in the previous year.
But, generally, the last five trading days of the year and the first two of the new year show something different: an increase in the S&P 500 known as the Santa Claus rally. This generally results in the index climbing a little more than 1% during the trading period.
If you happen to be invested in stocks that join in on this rally, wonderful! But the Santa Claus rally isn't a good argument for buying stocks right now. First, stocks you choose may not even take part in this rally, and second, over the long run, gains of a few percentage points won't make much of a difference in your overall returns.
At the same time, I wouldn't necessarily avoid stocks because economic headwinds remain. Market environments are temporary, and history shows us bear markets have always led to bull markets. So, even if we can't pinpoint exactly when the time of market expansion will arrive, we know it's on the way.
Let's consider another factor: Yes, we know better times are ahead, but it's possible that before reaching that point, some stocks could fall further. We might be tempted to wait until the economy and the stock market both are looking great -- and then start buying. The problem there is it's pretty much impossible to predict a stock's low point, and while waiting, you could miss out on great buying opportunities.
The importance of long-term investing
Now, let's talk about what all of this means for you right now. If you invest for the long term -- and that's the best way to invest -- any time is a great time to buy stocks. As I mentioned, when you're holding stocks for a number of years, a gain or loss of a few percentage points won't make a big difference.
Instead, examine a stock's valuation, and if it looks reasonably priced, now makes a fine time to scoop up the shares.
The points I've talked about -- the Santa Claus rally, today's economy, or even a stock's possible bottom -- all impact short-term investing. Luckily, as long-term investors, we don't have to worry so much about these elements and instead can focus on companies' prospects over the long haul.
Holding for the long term implies at least five years, but you often can generate even better returns if you extend that to a decade or more. This allows the company time to develop, grow earnings, or even recover and go on to excel if it's been through a difficult period -- and it offers you time to benefit from all of this.
Year-end investing could be right for you
I said any time is a good time to invest, and I mean that, but the end of the year represents a particularly promising moment. That's because you can look back on your annual performance -- not just this year, but your performance in past years too -- and make adjustments to your holdings in order to start your new investing year off right.
For example, you might notice that dividend stocks have contributed significantly to your gains over time -- and you may want to add to those positions. Or, with the idea of a new bull market ahead, you could add to growth stocks -- especially if you're an aggressive investor.
Finally, investing also is about seizing opportunities as they arise, so if a particular stock interests you now, take action. It could pay off in 2024 and beyond.
