Not sure whether to buy stocks now or wait? Trying to predict when stocks might rally or crash is very difficult. There has been talk of bubbles in artificial intelligence stocks for a while now, and yet many top tech stocks have continued to rally despite those fears. The same goes for concerns about a recession -- but that hasn't prevented the stock market from reaching new heights this year.
Despite all the concerns and market trends, here's why this month can be an optimal time to consider buying stocks.
Historically speaking, September is the worst month for the market
Data from Dow Jones dating back nearly a century suggests that investors should brace for a tough month in September. On average, stocks fall by 1.2% this month. That might not sound like an awful performance, but it's not as good as in previous months, where the Dow typically does well, as does the S&P 500.
In the long run, stocks normally rise in value as a whole, so you would expect that when looking at a very long time frame, the returns will be positive. That doesn't mean, however, that there won't be incredibly bad or good months along the way, but those fluctuations smooth out over time.
The fact that September is still averaging a negative return over such a long period means there are plenty of bad months in that calculation. Here's how the S&P 500 has performed during the month of September over the past five years.
| Year | S&P 500 Return |
|---|---|
| 2023 | -4.9% |
| 2022 | -9.3% |
| 2021 | -4.8% |
| 2020 | -3.9% |
| 2019 | 1.7% |
Source: YCharts.
So why would this make September a good time to buy stocks?
If you expect stocks to fall in value this month, then that would mean investors who are holding stocks could see their investments decline. But for people who are looking to buy stocks, now can be an optimal time to do so because that means stocks could be cheaper.
If you buy when stocks are rallying, then you're buying as prices are rising. Buying them when they are falling can set you up for better returns in the long run. That doesn't mean that every stock is worth buying. But if a quality stock is falling just due to this seasonal market trend, then that could indeed be a good buying opportunity. A quality investment will likely bounce back in the long run.
And if you don't want to pick individual stocks, you can simply invest in an exchange-traded fund (ETF) like the SPDR S&P 500 ETF Trust (SPY -0.57%), which will give you exposure to that index. Investing in a broad fund can allow you to take advantage of the market's overall path.
And with the Federal Reserve potentially cutting rates multiple times this year, that could be a catalyst for the overall markets, giving investors an extra incentive this month -- rate cuts could make growth stocks more attractive buys in the near future.
A decline in interest rates will decrease the cost of borrowing for companies, making it easier for them to pursue growth opportunities. By having exposure to the S&P 500, investors can tap into that upside without needing to analyze and determine which stocks could benefit most from the rate cuts.
There's never really a bad time to buy quality stocks
If you're investing in good quality businesses, there's never a bad time to do it. If their shares are falling in value, then they are cheaper to buy. And if they're rising in value, they could have even more upside. Risky buys, on the other hand, are risky regardless of the month.
If you're a long-term investor, you'll likely come away with a good return regardless of when you invest. As long as you are buying shares of quality businesses with solid growth prospects, or perhaps just investing in a broad ETF that tracks the S&P 500, you'll be in a good position to earn a solid return. September isn't a great month for the market historically, but that doesn't mean it's a bad time to buy stocks.
