When is a good time to invest?
The answer is not always straightforward. There is a little more science that goes into answering that question.
Part of making the decision about which stock to add to your portfolio is thinking about when to make that investment.
How do you figure that out? Well, there are a couple of ways to think about it.
Buying
Stocks on sale
When the stock market experiences a dip due to economic conditions or events, many investors see this as an opportunity to buy good-quality stocks at a much cheaper price. After a stock market correction or crash, be on the lookout to buy stocks at bargain prices.
Undervalued stocks
In the same way that you may look for a good quality property to invest in that is going for a price lower than what is considered market-related, you might apply the same technique when it comes to investing in stocks. You can assess whether a stock is undervalued by looking at a few different factors.
The price-to-earnings (P/E/) ratio is one way of assessing whether a stock is trading at a lower price compared to its peers. A P/E ratio reflects whether a company’s share price is overvalued or undervalued and how much investors are willing to pay for the stock relative to its earnings.
Do your own research
Doing your own homework on a company can help give you an idea as to whether it could be a fruitful time to buy their stock based on new business opportunities and ventures in the pipeline. Some ways to do this are to take a look at a company's annual report, read its recent news articles, and check in on analyst research which is regularly posted on the EasyEquities research portal.
Selling
We know that investing is a long-term game. Markets constantly fluctuate and having a long-term point of view means you have the opportunity to ride the ups and downs out. That being said, it's up to you and your own objectives and investing style to make the call as to when it's time to sell out of an investment.
Reached share price target
An investor may have shares in a specific company in their portfolio for many years with the idea of selling it once it reaches a certain price that would reflect their desired returns.
Taking advantage of new opportunities
As new opportunities arise, some companies may present better growth for the short to long term, while a current holding may have steady rather than robust growth. An investor may choose to sell shares in one company, in favor of investing in another.
Profile Rebalance
As investment holdings grow, instead of allowing one holding to overcloud one’s investment portfolio, investors will sometimes sell off a portion of their investment to balance their exposure with different sectors or industries. Rebalancing an investment portfolio offers you the benefit of spreading your risk and having a more diversified portfolio.