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In December, many investors look to prepare their portfolio for the new year. They add to positions they like — or invest in exciting new opportunities. But this year may feel a bit different. All three major indexes have made their way into bear territory. Many top stocks have followed — in some cases even when their earnings have defied today’s tough economic climate.
This means you may not feel inspired to go on a stock shopping spree just yet. Still, it’s clear many players are trading at dirt cheap valuations. That’s tempting. So, what should you do in this scenario? Should you really buy stocks before 2023, or wait a little longer? Let’s find out.
Let’s talk about why part of you is saying “I should wait.” Right now, investors don’t know where or when the bear market will bottom. My colleague Sean Williams wrote about an interesting clue to consider. The bad news: The worst may not be over for the general market.
So, you might hold off on buying stocks because you aim to get them at an even lower price when the market hits its lowest point. But there are two problems here. First, it’s impossible to predict a market low. You only can identify one well after the event. So, trying to guess exactly when that will happen is a waste of time and energy.
Second, the particular stock or stocks you want to buy may not follow the market so closely. Your stock may rebound well before or after any general market low.
Now here’s a point that should ease your worries about buying a stock before the market — or even the stock itself — bottoms. When you invest for the long term, short-term price movements won’t add up to much in your final return. Over a period of at least five years, a few weeks or months usually won’t make an enormous difference. So investing for the long term is crucial.
All of this means don’t focus on getting a stock at its very lowest. Instead, favor getting it at a valuation that looks reasonable — or even cheap — considering its track record and future prospects.
Right now, you can pick up exciting stories for a bargain. You might look at Home Depot. The company has continued to report increasing revenue and profit even amid today’s tough economic climate. Still, the shares have declined in the double digits this year. And Home Depot now is trading at less than 20 times forward earnings estimates.
In healthcare, you could check out a compelling recovery story like Teladoc Health. The stock is trading at its cheapest ever in relation to sales. At the same time, Teladoc’s revenue is growing in the double digits and the telemedicine leader has narrowed its loss.
Another point to consider is dividends. If a particular stock pays out a dividend before the end of the year, you’ll miss out by waiting. An example is Gilead Sciences. The biotech company pays its dividend later this month. Passive income always is welcome. But in market downturns it can play a key role in boosting your returns.
Finally, it’s important to remember a bear market won’t be around forever. Historically, bear markets have lasted an average of about a year. So, yes, things are difficult today. But better times lie ahead. That means it’s never too early to prepare for them. And the best way to do that is through investing.
Let’s get back to the question: Should you buy stocks before 2023? By now, you probably know what my answer will be. A big yes. If a particular player’s long-term prospects look promising and valuation today is fair, now is the right time to make the move. Over time, you could reap major rewards — even if you didn’t buy at the market bottom.
Adria Cimino has positions in Home Depot. The Motley Fool has positions in and recommends Gilead Sciences, Home Depot, and Teladoc Health. The Motley Fool has a disclosure policy.
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