The Best Time to Buy

When is the best time to buy something, whether it’s a stock, or something more mundane, such as a new pair of shoes?

Of course, everyone knows the simple answer – buy when the price is down.

The question, however, is how do you know when the price will be down, and how do you know when it has reached its lowest point? Of course, in hindsight, the answer to this is easy, but how do you predict it?

There is, in fact, no way to know when the price has finally bottomed out. Look at any stock chart, and you will see the price rising and falling, and rarely in a nice smooth curve. There are many peaks and valleys, and knowing which is the last one is impossible to predict.

As an investor, you must therefore guess, but at the same time, protect yourself in case you’re wrong, and here’s how.

For our example, let’s say you have $1000.00 to invest. You could invest it all today, but then if the market tanked tomorrow, you would lose the difference. For that reason, you spread your risk. Split your investment over 2 days in equal parts, and you’ve now paid an average price for your stock. The more portions you split your investment into, the more you mitigate your risk.

Of course, if prices start to rise, you won’t have invested all your money at the bottom. But, as prices fall, or if prices are uncertain, this can protect you. Additionally, it is easier to invest $100 per week for 10 weeks than it is to invest $1000 in one day. This can help you budget better, and help you with general savings. It is always easier to save in stages, even if each stage is small, than it is to put away a lump sum infrequently.