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The Best Months to Buy Stock (And the Worst)

Jason BondJason Bond ·

Buying stocks relies on strategy, research, close monitoring, and knowing when the best time to buy actually is. One of the most common questions that comes up with new investors is when is the best time of year to buy shares? When answering this question you may find yourself with a variety of answers depending on what you are trading and what your research tells you. Some of the most popular months for trading have always been:

  • December for taking advantage of companies unloading stocks.
  • October in response to September drops.
  • May to get in on summer seasonal stocks.

What Month Is the Best Time to Buy Stocks?

When buying stocks, timing is everything. When researching the market, you may find that there will usually be strong returns at the beginning of the year as well as during the summer months, or half-year mark. For many people, these are the best months to buy stocks. One of the worst months in the stock market tends to be the month of September, which is traditionally down across the board.

The drop in September is often followed by a turnaround in October, though, which historically will be positive, with only a few years with significant drops. Because of the trend, many equity traders will look to buy in in a big way in September when the prices are lower, anticipating the upswing in October. Others may find that September is one of the worst months for stocks.

The end of December has also proven to be a good time to buy both value and small-cap stocks if those stocks are poised to rise in the month of January. Another advantage of trading in the month of December is that there are many investors that will sell large amounts of stock at the end of the year, especially stock that has lost some value. This means that the last week in December can bring a lot of bargains on stocks you want to invest in.

What Is the January Effect?

At the turn of the year, many investors return to the market hungry and ready to take on the New Year. For many investors, this is a sign that it may be the best time to buy stocks in the year. This causes a drastic increase in prices, especially in value stocks and small-cap stocks. This is often referred to as the January effect.

There are many people that feel the January effect is unfounded and that the monthly returns in December are typically almost double those in January, making it the better month. Though some analysts think that many investors will dump stock in December in an effort to harvest the capital losses and offset their tax liability for the year.

When it comes to the spring and early summer months, you may have heard the phrase, “sell in May and go away.” With this investing strategy, an investor would sell the holdings in their portfolio towards the beginning of May and then hang back from trading until November rolls around.

Basically, if you choose to employ this strategy, you will want to avoid holding onto any stocks from the period between May and November. Many investors have adopted this strategy due to the fact that the returns will tend to be lower during this time frame than any other throughout the year. While some investors swear by this strategy, many others have found that it has little to no merit.

Is There a Best Day of the Month to Invest?

While there is no magical day each month that proves to be the best time to make any investment, there are certain stock tendencies that do occur at certain times. One is that stocks tend to rise when the month turns, which is mostly as a result of new money flow directed toward mutual funds that occurs at the beginning of the month. You will also find that fund managers like more neat balance sheets at the end of each quarter and will often times buy stocks that have performed well in the previous quarter. With prices rising at the beginning and the end of the month, that means that stock prices are likely to fall around mid-month. So for traders looking to buy, mid-month is likely to give them the best prices, with the best time to sell being within the last five days of the month.

Is There a Best Time of Day to Buy or Sell Stock?

When the opening bell rings, the market tends to get a little crazy. It is this time that news from the previous day is known and being reacted to. This is the time when the market is most volatile. If you are adept at recognizing patterns, you can make a quick profit, but those less skilled can take heavy losses. If you are a novice, it is best to avoid the first hour after opening.

If you are looking for a more calm time of day for trading, then the middle of the session is what you want. Many traders are waiting for further news releases to come out, and others are watching for where the market is headed for the day. This can be the ideal time for novices to make their trades.

As the day winds down, the market will again become volatile and volume will begin to increase again. The last hour is marked by big moves and sharp reversals. At this point, many people may be trying to close out their positions. This is the time of day to trade for more experienced traders.

What Are Seasonal Stocks?

As with everything in nature, business, and finances, things are cyclical, and in some instances, even seasonal. Some businesses operate with seasonal highs and lows, and those same fluctuations may affect investors as well. When you have stocks in industries that are seasonal, they will experience booming seasons as well as inactive seasons. When an investor looks at seasonal trends, they can take advantage of the rhythmic rising and falling of those stocks by analyzing and researching these trends.

Seasonal, Non-Seasonal, Cyclical, and Non-Cyclical Stocks

When researching stocks, it is important to identify seasonal, non-seasonal, and cyclical stocks so that you can better determine the right time to invest in certain industries.

Seasonal Stocks

Stocks that may be subject to demand at different times of the year are often referred to as seasonal stocks. An example might be a company that specializes in surfboards or summer sporting goods is likely to be extremely active in the spring and summer months, but see a lull in fall and winter. That doesn’t mean that you should run out and get as much stock in spring in summer-heavy companies and sell in fall. Instead, you will need to consider other factors. When doing your research, you need to determine such things as when the company is likely to place their wholesale orders for the season and compare this with their historical financial and earning statements, to determine if this is the best time of year to invest in stocks.

Non-Seasonal Stocks

A non-seasonal stock is a stock that is not greatly affected by seasonal shifts. For example, a company that sells jeans and jean shorts is likely to stay consistent throughout the year, with only a slightly higher demand around times of higher purchases such as back to school season or Christmas. With these stocks, you should not expect to see much fluctuation in stock prices throughout the year.

Cyclical Stocks

You will also find certain stocks that will change in the general direction that the economy does. This is not typically intended, but they are often stocks tied to spending. The better the economy is, and the more people are spending, then the better these stocks tend to do. Many times stocks that fall in this category are luxury brands, such as jewelers and companies that sell boats. These items are considered non-necessities, and often times when people are spending less, these areas will see a reduction. Many people will look to these stocks to determine if the economy is in boom or bust.

Non-Cyclical Stocks

Non-cyclical stocks are the polar opposite of cyclical stocks. These stocks are not typically affected by the economy. These industries are often focused on products and services that people need, such as medication. People will consume these items even if they don’t have additional money to spend simply because they need them. These are often called defensive stocks as they don’t move based on the economy and tend to hold a steady price.

What Are the Best Months to Buy Seasonal Stocks?

The best months to buy seasonal stocks vary depending on the industry you are looking to buy for. July is a good time of year to invest in companies related to back-to-school products and needs. December is known as a good time to pick up stocks cheap as others may be dumping it to be able to gain additional write-offs for the year. While January is the time of year that retail slows down, it can be the best time of year to buy retail stock. Sales figures are high due to the recent holiday sales, making it easier to better judge their success.

Unfortunately, even with best efforts, there is no way to truly predict how stocks will perform throughout the year. The best avenue is for investors to maintain a diversified portfolio that utilizes asset allocation strategies to provide them with solid returns even when downturns occur. But if you want to up your risk a little and take advantage of seasonal stocks or monthly buying trends, then you can find the information you are looking for by downloading our free e-book or attending one of our webinars.

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