Is now a good time to buy stocks?

With share prices down sharply over the last month, many investors are wondering whether now is a good time to buy shares.

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With global stock markets in meltdown at the moment due to the coronavirus, many investors are asking whether now is a good time to buy stocks. Those who have been sitting on cash are wondering if now’s finally the time to put their money into the market. Meanwhile, those who invest regularly are wondering if they should continue to buy stocks while the market is falling.

My personal view is it’s a good time to be investing a little bit of money in stocks (assuming you have a long-term investment horizon), as I expect the stock market to eventually recover from this setback. Having said that, I expect volatility to remain elevated in the near term, so a cautious approach is sensible.

Is now a good time to invest in the stock market?

As global equity markets have tanked over the last month or so, share prices and valuations have come right down. If you’re a net buyer of stocks with a long-term investment horizon, as I am, that has to be a good thing.

Take one of my favourite FTSE 100 stocks, Sage, for example. Only a month ago, it was trading for around 760p, meaning a £1,000 investment got you roughly 131 shares. Now, however, the share price is just 540p. That means that a £1,000 investment gets you 185 shares. In other words, you now get far more for your money.

It gets better though. As share prices have fallen in the last month, dividend yields have risen. Looking at Sage. A month ago, its trailing yield was just over 2%. Now though, it’s 3.2%. So, not only do you get more shares for your money, but you also get a higher yield, meaning a higher level of regular income going forward.

It’s this extra buying power, and the higher dividend yields on offer, that lead me to believe it’s a good time to invest. Given that the stock market has always recovered from setbacks in the past, I think it’s likely those buying today will be rewarded in the long run.

Will stocks fall further? 

Of course, it’s important to realise stocks could fall further from here. Right now, there’s an awful lot of economic uncertainty due to Covid-19. Volatility is also likely to remain very high as it’s an extremely dynamic situation we’re facing.

So my advice, if you’re thinking about buying stocks in the current environment, is:

  • Average in. This will smooth out your entry points. Have £10k to invest now? Why not invest £2.5k every month for the next four months? That way, if stocks fall further, you’ll be able to take advantage.

  • Think long term. If you buy a stock today, don’t worry about what it does in the next day, week, or month. Instead, give yourself a five-year investment horizon. The chances are, in five years, you’ll be happy you invested. And, as always, don’t invest money you’re likely to need in the short term.

  • Buy quality. Finally, focus on high-quality stocks that’ll be resilient in the event of a recession. This will help minimise risk and reduce the chances of big losses if economic conditions deteriorate further. 

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon owns shares in Sage Group. The Motley Fool UK has recommended Sage Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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