Making my way through different online forums on personal finance and investing, one common question I have come across is ‘what is the best time to invest in the stock market?’ or ‘should I hold off investing in stocks expecting a market crash?’

This is known as ‘trying to time the market’ and is a concept that is frowned upon in the investing community. Timing the stock market is when you try to make use of any information available to you to decide what is the best time to get into the stock market? This is something you cannot, at least efficiently, do given how complex the investing world is.

Let me break it down for you.

Stock Market crash due to COVID-19

We can take the market crash of 2020 due to the COVID-19 pandemic as an example. When the pandemic first broke out in late 2019, most of us did not anticipate the severity of the virus and likely anticipated the world to recover by mid-2020 at most. If you had a similar line of thought, you likely did not anticipate a market crash as severe as what we experienced in early 2020.

On February 9, 2020, the S&P 500 Index stood at $3,380 and by March 15, 2020, the index crashed to a record low of $2,305. Although the S&P 500 Index does not represent the movement of the entire stock market, it is a good indicator of how the market behaves in general. This 1,000 point drop was likely not anticipated by many.

Even if someone expected a market crash by March 2020, they would likely not know the exact time to buy into the market. The market dropped 1,000 points over a period of a little over a month. At what point during this drop would you have invested thinking the market will not go down further? At a 200 point drop? At a 500 point drop? There is no way anyone could have predicted the collective consciousness of billions of investors around the globe through which the price fluctuations are shaped on.

Also, another fun fact is that even though the S&P 500 Index crashed by 1,000 points at the height of the pandemic, it has fully recovered and grown beyond anyone’s expectations just after one year since. At the time of this article, on November 29, 2021, the same S&P 500 Index stands at $4,655 — a $1,300 increase from its pre-crash high. So, even if you had bought into the market at the pre-pandemic high, you’re still in the green!

Of course, there could be bigger catalysts that could drag the market down even more in the future, but there is no way for us to predict these events. This is where one golden rule of investing pops up;

Time in the market is more important than timing the market

This simply means that you should invest as soon as possible. This ensures that your money has the most time to grow. The general consensus is that the stock market always goes up — it always grows given enough time.

So if you have spare money today, the best time to invest is today!

Investing vs Trading

Everything we discussed above is relating to investing, which is a long-term game. In the long run, the stock market always goes up.

Trading or day trading or swing trading is a whole other game, though. All of these terms essentially mean taking advantage of quick and sharp fluctuations in stock prices to make small but frequent gains. So, in essence, a day trader would be looking for dips and gains in a stock.

For day traders and swing traders, timing the market is everything. They rely on pattern recognition to identify drops in share prices to buy and determine sufficient margins to sell when the prices recover.

Conclusion

For long-term investors, the best time to invest is always as soon as possible — which means today. Give your money the most time to grow because, in the long run, the stock prices always go up.

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FAQs

These were some questions I found on Google and my answers to them.

Is it best to buy stocks when it’s low?

Of course, it is. The best time to buy stocks is when they are low. For value investors, this gives the biggest gains, and for dividend investors, this gives the highest income yields. However, the problem is predicting when a share price is going to be low. You can keep some spare cash in your investing account to hunt for price drops, but what if they don’t drop for a year? You would have lost potential gains of that year.

Which day of the week is best to buy stocks?

For long-term investors, this should not be a question. Like we discussed before, for long-term investors, the best day of the week to buy stocks is today. For traders, the best day is said to be Monday when there are no other catalysts at play. But this is a very generalized statement as any news during the rest of the day can cause severe market fluctuations on any day of the week.

What is the Monday Effect?

The term Monday effect refers to a financial theory that suggests that stock market returns will follow the prevailing trends from the previous Friday when it opens the following Monday. [Source: Investopedia]

What time of day are stock prices lowest?

Again, on a very generalized term, the stock prices see the biggest fluctuations during the opening hours of the stock market i.e. 9.30 am to 10.30 am. Almost all of the pre-market orders and day traders execute their orders during this time. However, there is no guarantee that the stock prices will be the lowest at this point.

How do you tell if a stock will go up or down?

In theory, an investor should be able to look (fundamental analysis and technical analysis) at the company and determine if they are doing well right now and into the future. This should give an indication as to if the company’s share price can go up and down. However, in practicality, the stock price depends on the collective perception of all the investors in the market. Even if you strongly believe the company is undervalued, if the market perceives the stock to be overvalued, people will sell and the price will go down.