Investing in the stock market is one of the best ways to generate wealth. But for new investors, getting your feet wet in this practice can be intimidating.
The New York Stock Exchange has been around since 1792. And since that time, experts have come up with a few tips and tricks so that investors can get the most bang for their buck. One of those tricks has to do with knowing about the best month to buy stocks.
Interested in learning more? Continue reading and we'll walk you through everything you need to know.
The January Effect
While you can probably find a reason to claim any specific month is the best one to buy stocks, most experts seem to agree on January as the top pick. This is due to a phenomenon known as the January Effect.
The January Effect is the belief that stock prices go up during January for a couple of different reasons. One of those reasons is because investors sell a lot of stocks they lost money on in December so that they can offset capital gains taxes. Another hypothesis is that investors buy stocks in January thanks to big year-end bonuses.
The Santa Claus Rally
And the final reason why experts like buying in January is the Santa Claus rally. This is the assumption that Christmas shopping at the end of December stimulates growth that spurs increased stock prices in January.
The rally tends to begin around December 20th and continues until around January 4th. This time of the year is kind of a like groundhog for the stock market. If the rally actually occurs, it usually signals good things ahead for the coming year.
The most important timeframe during this rally is the first five days of the new year. If the Santa Claus rally is able to continue through these days, then the stock market may very well see an upward trend for the year. Because of this, many experts recommend that investors wait for the first five days of January to pass.
If the record continued through the first five days, then it's time to start buying. And if you watch this rally in the January following a presidential election (like the one coming up), that tends to be an even more accurate indicator of coming trends.
The Importance of Knowing About the Best Month to Buy Stocks
The stock market can many times be elusive and difficult to understand. And it's certainly true that past performance doesn't guarantee future results. But by looking for strong and common patterns, such as learning about the best month to buy stocks, you can certainly find new and useful entry points into the market.
Speaking of the Santa Claus rally, have you considered purchasing a fun stock market-related gift? If so, you should definitely check out some of our fun gift ideas for more!