Should I Buy Stock Now or Wait?

Putting money into the stock market can strike fear in some would-be investors. Nobody wants to end up buying right when prices peak. Investing amid a market downturn can be even more gut-wrenching. It's impossible to know whether the worst is over or more losses are yet to come.

So, how do you evaluate when to buy stocks and when to wait for a pullback in the market? The best answer is that you don't. Both passive index fund investors and individual stock investors will likely be better off consistently buying shares and ignoring the daily ups and downs of the market.

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An infographic explaining when it is a good time to buy stocks. — Image source: The Motley Fool.

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If you invest consistently over time -- putting more cash into your investments every month or so -- you'll end up catching a correction or a stock market crash on occasion. Those are opportunities to invest even more than usual if you can swing the cash flow.

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Cash Flow

Cash flow is how we measure the actual money flowing through a business that can sometimes be hidden behind complexities.

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Of course, it's not particularly feasible to plan for the unpredictable. If the market could predict a crash in stock prices, a crash would never actually occur.

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If there's a stock with a good price, it's worth buying. Even if it decreases in the short run, trust the research you've done to produce long-term gains. But don't ignore the company entirely. Consistently check your investment thesis to make sure it's still valid.

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Investment Thesis

Learn about what an investment thesis is and how to create one alongside a few examples of an investment thesis.

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What's the best time of day?

On regular trading days, the stock market is open from 9:30 a.m. ET until 4 p.m. ET. For investors who plan to hold stocks over the long term, it doesn't make much difference what time of day they buy or sell.

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Day traders prefer volatility so they can capitalize on price swings throughout the day. That's why you might read that the best time of day to buy and sell stocks is between 9:30 a.m. and 10:30 a.m. or 3 p.m. and 4 p.m. The first and last hours of trading see much more action than the middle of the day.

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CBOE Volatility Index (VIX)

The Chicago Board Options Exchange Volatility Index, or VIX, is an index that gauges the volatility investors expect in the stock market.

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It's important to know that day trading and investing are two very different things. Investing is when you buy shares in a company. If the company performs better than anticipated, investors are rewarded with outsize appreciation in their shares.

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Day trading is when you buy and sell stocks on the same day without regard for the underlying fundamentals of a company. Both can be profitable, but it's very difficult to become a profitable day trader. It's much easier to become a good investor.

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What's the best day of the week to buy and sell stocks?

There's anecdotal evidence that the stock market dips most on Mondays after a bevy of bad news builds up over the weekend. It might also be that people aren't happy to be going back to work on Mondays (i.e., the Monday Effect), leading to a pessimistic stock market.

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Monday Effect

The Monday Effect is a theory in finance that the prevailing trends in the stock market on Friday will continue into Monday.

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But the Monday Effect, or Weekend Effect, as it's also known, has faded to nonexistence over the past 45 years. According to a study by Arizona State University researchers, stock market performance on Mondays has not differed significantly from any other day since 1975. So, go ahead and buy stocks whenever you have the cash.

The corollary of the nonexistent Monday Effect is that there's no best day to sell stock, either. People used to suggest selling on Friday to avoid the probabilistic bad day on Monday, but that strategy doesn't make sense in today's market.

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Related investing topics

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How Many Shares Should I Buy of a Stock?

So you've found a company to invest in. How many shares should you buy?

Can You Buy a Stock and Sell It in the Same Day?

Same-day stock trading can subject you to a higher level of regulatory scrutiny -- and financial risk.

Average Stock Market Return

Stock market results can vary wildly from year to year.

What Are the 11 Stock Market Sectors?

The larger stock market is made up of multiple sectors you may want to invest in.

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Far more money has been lost by investors preparing for corrections, or trying to anticipate corrections, than has been lost in corrections themselves.
Peter Lynch

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Simply looking at a few statistics should show you why attempting to time the market is a big risk. If you invested all your money in an S&P 500 index fund at the start of the century, you'd see an average return of about 6% per year over the next 20 years. That period includes the dot-com stock market bubble and the Great Recession.

But if you missed out on the 10 best days for the index during that period, you'd earn just 2.44% per year. You'd miss out on half the returns of the market. You never know when those 10 days will occur across the 20-year period, but you'd better have your money working for you when they arrive.

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About the Author

Adam Levy is a contributing Motley Fool stock market analyst covering technology, consumer, and financial stocks and how policy, economic, and consumer trends shape personal finance, Social Security and retirement savings. Before The Motley Fool, Adam was a financial advisor at Edward Jones. He studied finance and electrical engineering at Carnegie Mellon University.

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