Is Now a Good Time to Buy Stocks?

“Should I buy stocks now?"

This is one of the most common questions we hear from clients—especially when the markets turn more volatile, or the economy is marked by uncertainties. While this question may sound like a market timing question, we think there’s something deeper going on, and it could be investing jitters. When markets are under pressure, managers and investors alike may fear recession. And if a big sell-off occurs, as it did in early August, this question may be even more prevalent.

Let’s examine how financial consultants Kyle Ray, Kory Klossner and Eric Martinez answer clients' questions about whether to buy stocks now and explain why it’s never a “yes” or “no” answer.

Why? “Without context around a person’s investment objectives, tolerance for risk, investment horizon, income and liquidity needs, it’s impossible to answer that question effectively,” says Kyle. “There’s so much more that plays into when to buy and how much of a stock allocation you should have for your long-term investment plan.”

In general, here’s what we want clients to know about investing in stocks during volatile times or any time.

First Things First: Stick to Your Long-Term Investment Plan

Ultimately, we believe your stock buying and selling decisions (or plans for any asset class) should be guided by a long-term investment plan that’s appropriate for your age, wealth, comfort with risk and goals.

“When people have a financial plan, it puts what’s happening in the markets or the economy into the right perspective,” says Kory. Clients who are comfortable with their financial plans typically are not the ones calling and asking about when to get in or out of the stock market. “They already know that market volatility is accounted for in their plan.”

Your financial plan also guides your allocation decisions—the percentage of each asset type you should have. The plan can help with other considerations as well, such as when to rebalance if market activity has changed the amount of risk in your portfolio and you need to return it to your original risk target.

“Note that if you’re in one of our managed portfolios, our investment professionals take care of the rebalancing for you,” says Kyle. “Our goal is to keep the portfolio at its intended risk level, which means investors don’t have to worry if the portfolio is now too risky, or not risky enough, to help them reach their goals.”

Consider the Benefits of Buying Stocks in Volatile Times

Some investors might be tempted to sell during volatility, but that’s the opposite of “buying low, selling high.” If it fits your plan, buying stocks when equity markets are low may actually be beneficial. Considerations include how long you will hold the investment, whether the stock is likely to rise in value over time and if it fits within your personal risk tolerance.

“Down markets might also be a good time for other strategies, such as Roth IRA conversations or tax-loss harvesting,” says Eric.

For conversions, if you’re exchanging from a traditional IRA to a Roth IRA in the same fund, you are moving more over to an account that offers tax-free withdrawals down the road—when you’re 59½ or older. During a market bounce back those shares may be able to grow into a potentially favorable range, but in a Roth this time.” Note that converting from a Traditional IRA to a Roth IRA is a taxable event.

“Using a tax-loss harvesting strategy when markets are down allows you to offset realized gains from another investment with a loss, potentially helping with your tax bill,” says Kyle. Of course, you must adhere to the rules, including the IRS’ wash-sale rule that prohibits investors from creating “artificial losses” by selling securities at a loss and buying a substantially identical security within a certain period.

Buying Stocks Now: Consider Averaging Into the Market

For those with a long-term investment horizon and a higher tolerance for risk, buying stocks during volatile times may be a good choice, with some considerations. If you have a shorter timeline before you need the money from your investments, you may want to consider how much stock allocation you actually need in your portfolio. Closer to your goal, you may want your portfolio to be more conservative and with less risk.

“The most paramount situation for purchasing stocks during volatile times is your time horizon,” says Kory. “For someone who has a five-, 10- or 15-plus-year time horizon, equities may be appropriate, especially if we’re thinking about someone who is sitting in cash.”

Investors with longer time horizons may need the kind of growth that stocks have historically produced, and their investments may have more time to bounce back if there’s another downturn ahead.

“However, we’re not advocates of wholesale stock purchases," says Eric. "Instead, it may be a good time to average back into the market. We don’t believe it’s possible to identify a ‘perfect’ entry point to purchase stocks.” Instead, it may be beneficial for investors to partition their available investment funds and invest regularly over a set time period.

“This is a tried-and-true method for gradually increasing one’s equity exposure, with the benefit of automatically dollar-cost averaging,” says Kory. “And it can help you purchase more shares with stock prices are lower and fewer shares when they are higher.”

Dollar-cost averaging can also help you stay invested during tough market conditions. “A systematic investment approach like this helps keep your emotions in check, while smoothing the effects of volatility on your portfolio during turbulent times,” says Kyle.

Avoid Market Timing When Buying Stocks

While some people get lucky, no one has ever been able to reliably predict the best time for getting in and out of the market. Getting the timing wrong—for buying or selling—can have a disastrous impact on your portfolio’s returns. “That’s another reason we advocate for a long-term, diversified approach,” says Eric.

That approach should include a mix of investments to give you a better chance of riding out the volatility. “Even in down markets, investors who have a diversified portfolio can still be realizing gains from other areas that are performing better and offset losses from somewhere else,” says Kory.

He also reminds clients that down markets may not affect investors as much as they might think. “Even though they may see a loss on paper, it’s doubtful they'll feel the full force of it because investors rarely withdraw all their money at once. Keeping it invested can help investors take advantage of a recovery in the market.”

Considering Stocks Now? You Can Ask for Help

There are pros and cons to purchasing stocks during volatile times, and ultimately, it comes down to what’s right for you and your goals. Because the stakes can be higher, you may want to consider speaking to a financial advisor before you make your next move.

“Asking an advisor can help during volatile markets in more ways than you might think,” says Eric. “Things definitely feel different when we experience volatility, but an advisor can help you think through strategies to know when it may be the right time to make a position move or how to mitigate taxes in the process.

“Find someone you feel connected with and let them help you make those decisions, and create a financial plan if you don’t already have one.”

Kyle agrees, and advocates for seeking out an advisor who is a fiduciary, like we are. “A fiduciary advisor is obligated to put your needs first.” Also, remember that all advisors make product recommendations, but you may want to consider those who don’t get fees or commissions based on what products they recommend.

“We aren’t commissioned-based here,” he says. “And I think that gives our clients more open to the possibilities in the products we do recommend.”