Should You Buy Stocks Now Or Wait Till Later?

Intending investors have now been faced with a dilemma which is whether to buy stocks now given the current levels of volatility or to do so later. The answer is not as simple as you would expect.

The covid-19 pandemic, unanticipated as it was, has come to alter life as we know it. It has changed the face of work, the state of businesses across the world, the strength of economies, and more.

The stock market was also not left out. If you are an existing investor and your investment portfolio has taken a little bit of hit thanks to the volatility as a result of this same saga, it is only normal.

Volatility to the stock market is like oxygen is to life. The stock market will always bounce back. However, intending investors have now been faced with a dilemma. To buy stocks now or do so later?

The reasons are not farfetched. On one hand, since the goal is to buy low and sell high, the few stocks taking hits by virtue of the covid-19 pandemic present a buying opportunity – just as long as you have the money for it, of course.

However, with the level of uncertainty, there are two other options. The first is whether to wait for prices to further decline and buy really low, and the second is the risk that you are actually investing in stocks that do crash without a recovery. In other words, you might just end up investing in something that fails.

So what you have on one hand is that you try not to lose money – which is essentially one of the most important rules of managing your investment portfolio.

Buying stocks that eventually keep losing value can make you feel really dumb and set you off on a course for emotional decision-making.

And on the other hand, you have the possibility of a long-term advantage when the prices get back to normal and you were able to capitalize on the low prices.

It means even when prices crash a little, you will still have better chances than the investor who purchased at regular prices. In the same vein, you could feel really dumb for not going after an opportunity that’s so glaring.

How Then Do You Make A Decision?

There are different things to consider.

The First Is Whether You Have The Money To Buy:

How much you have to invest now? How much you have to invest in the future? If you don’t have money saved up and will rather spread your investments across a period, you enjoy the benefits of averaging out the costs that come with investing over a period of time while also being able to watch the progress of the market.

On the other hand, if you have a lump sum of money, you have the opportunity to generally spend less this period. If your stocks do rebound, you are better off investing all at once. This brings us to the next point.

The Opportunity Cost:

The New Oxford American Dictionary defines opportunity cost as "the loss of potential gain from other alternatives when one alternative is chosen." In other words, if you choose to invest, what is the potential benefit that comes with not investing?

What this means is that you carry out a cost benefit analysis of your options. You already know that one of the most unprofitable times to invest is after the markets recover, so compare your options and choose the benefit or loss that you are willing to forego.

Are you willing to forego the potential benefits of a rebound for the possibility that you could lose your money? Or are you willing to forego the need for capital preservation over taking a great opportunity that could equip you with a strong investment portfolio going forward? This then brings us to the final point.

What Is Most Important To You?

The most important part of the decision making process. Will you prefer to take the risks and test your odds against the possibility of gains or will you choose to save your money without making anything?

What is your investment plan? Are you investing in stocks because they fit into your strategic investment plan or because they just present an opportunity?

So far, the Nigerian Stock Market in its totality hasn’t taken much of a hit and a reason for this is that the demand is still fine. People are still investing because they can still see the opportunity involved in it.

However, the most important part of the process is investing with a plan and choosing an option that works for you. By having a plan, you don’t invest with sentiments or emotions; rather, you get to make calculated decisions to be able to come out strong no matter what.

Written by Lawretta Egba.