When is a good day to buy?

A question most investors ask themselves at some point is: “Is today a good day to buy into the market?” I waffle between two responses that sound the opposite but mean the same thing. It’s always a good day to buy and there is no such thing as a good day to buy. It’s always a good day to buy in the sense that markets go up over time and no one knows what the market will do tomorrow so it’s best to get your money into the market now. There are no such things as good days to buy in the sense that the question implies there are bad times to buy and you should wait until a good time, but you shouldn’t wait so there is no such thing as a “good day.”

That said we looked at daily moves in the S&P 500 going back to 1928, to see if some days have presented historically good buying opportunities. We sorted days into groupings and then looked at the return on the ensuing day. The following table summarizes the findings:

Any Day: In aggregate, the market goes up an average of 0.03% each day.

Up Days: The average return of the stock market the day after it goes up is a positive 0.07%.

Down Days: Some might say buying on just any down day isn’t a good move as it is one of two scenarios where the ensuing day averages a negative return. But the average is barely negative, effectively 0.

Up 2% Days: When the market has a strong day, the next day rises about the same as an average day.

Down 2% Days: Now we start getting into interesting numbers. When the market drops by 2% or more, the ensuing day tends to be quite positive with an average return of +0.19%. On average we get a handful of days like this a year.

Up 4% Days: When the market has a very strong rally, it’s probably best to wait a day before buying stocks. Unfortunately, these large rallies are rare. Despite having 8 such days in 2020, we only saw one from 2012 – 2019.

Down 4%: When the market is tanking, it’s reasonable to expect a rebound the next day. On days when the market drops 4%, we typically see it regain two-thirds of a percent the following day. Like with up 4% days, these seem to only happen in times of extreme volatility.

Consecutive up 2% Days: These are very rare and very boring. When the market has two strong days the ensuing day averages the exact same as any given market day.

Consecutive down 2% Days: Again, very rare but this time very good. When the market slides by 2% on back-to-back days, the following day is often very positive, up nearly a full 1% on average. This year we had three such days with the following days showing returns of -0.38%, +9.29%, and +9.38%. Coincidentally, the market’s bottom on March 23rd was the second consecutive down 2%+ day (-4.34% & -2.93%). Again, these are so rare they are not worth waiting and the days after the ensuing day may be bad, but that ensuing day is usually pretty good.

What can we conclude from this? My only takeaway is that you should buy when you have the funds available with the exception of a day when the market is up BIG (4%+). While large down days do present good buying opportunities, they are rare and not worth waiting for. Most other days tend to have positive ensuing returns reaffirming the idea that money should be invested.

This is not to say there isn’t merit to dollar cost averaging. When you have money that has been sitting in cash and are concerned with the psychological impact of getting unlucky, it can make sense to buy in over a period of months on a set schedule.

The stock market can be cruel, volatile, inexplicable, and frustrating for those who try to pick the perfect time to buy. By investing when the funds are available, accepting perfect is impossible, and blocking out the noise, you position yourself to contently reap the benefits of investing. As we get through the holiday season, take a look at your finances and if you have the capacity to invest additional cash- please reach out, now is as good a time as any!

 

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Six financial best practices for year-end 2020

Has 2020 left you feeling like the fabled Sisyphus, forever pushing a boulder up a steep hill? Thankfully, with multiple COVID-19 vaccines in the works, there’s hope the load will lighten in the new year, fast approaching. While we prepare for a fresh start, here are six financial best practices for year-end 2020 and beyond, none of which require any heavy lifting.

  1. Give as you’re able, get a little back. What the 2017 Tax Cuts and Jobs Act (TCJA) took from charitable giving, this year’s CARES Act partially gave back – at least for 2020.
  • A $300 “Gift”: Under the TCJA, it became much harder to realize itemized tax deductions beyond what the increased standard deductions already allow. But this year, the CARES Act lets you donate up to $300 to a qualified charity, and deduct it “above the line.” In other words, even if you’re taking a standard deduction, you can give a little extra, and receive an extra tax break back, without having to itemize your deductions.
  • Giving Large: If you are itemizing deductions, the CARES Act also temporarily suspends the usual “60% of your AGI” limit on qualified cash contributions. The exception does NOT apply to Donor Advised Fund contributions, and has a few other restrictions. But if you’ve already been thinking about making a large donation to a favorite charity, 2020 might be an especially good year to do so – for all concerned.

 

  1. Revisit life’s risks. As the pandemic reminded us, life is full of surprises. That’s why it’s imperative to build wealth, and protect it against the inevitable unexpected. Is your current coverage still well-aligned with your potentially altered lifestyle? Perhaps you’re driving less, with lower coverage requirements. Or new health or career risks now warrant stronger disability insurance. Might it be time to consider long-term care or umbrella coverage? Bottom line, there’s no time like the present to prepare for your future greatest risks.

 

  1. Leverage lower tax rates. While it’s never a sure bet, Federal income tax rates seem more likely to rise than fall over the next little while. Even before this year’s massive relief spending, the TCJA’s reduced individual income tax rates were set to expire after 2025, reverting to their prior, higher levels. As such, it may be worth deliberately incurring some lower-rate income taxes today, if they’ll probably spare you higher taxes on the same income later on. As a prime example, consider converting or contributing to a Roth IRA. You’ll pay income taxes today on the conversions or contributions, but then the assets grow tax-free, and remain tax-free when you withdraw them in retirement.

 

  1. Harness an HSA. Health Savings Accounts (HSAs) are another often-overlooked tax-planning tool. Instead of paying for a traditional lower-deductible/higher-cost healthcare plan, some may benefit from a higher-deductible/lower-cost plan plus an HSA. If a high-deductible plan/HSA combination is available to you, it may be worth considering – especially if a career change, early retirement, or some other triggering event has altered your healthcare coverage. HSA assets receive generous “triple tax-free” treatment – going in pre-tax, growing tax-free, and coming out tax-free (if spent on qualified medical expenses).

 

  1. Read a great book (or few). As we swing into a winter of continued social distancing, you may have more time than usual to curl up with a good book – whether in print or on your favorite device. Why not add a best financial book or two to the list? As good timing would have it, The Wall Street Journal personal financial columnist Jason Zweig recently shared an excellent “short shelf” list of his top picks. As Zweig reflects, “they all will help teach you how to think more clearly, which is the only way to become a wiser and better investor.” Looking for our own favorites? Let us know.

 

  1. Live a little more. Really, it’s always a best practice to ensure your financial priorities are driven by your life’s greatest goals – not the other way around. Perhaps our greatest purpose as your wealth advisor is to assist you and your family in achieving a satisfying work-life balance, come what may. What does this balance look like for you? Speaking of good reads, in his new book, “The Coffeehouse Investor’s Ground Rules,” Bill Schultheis offers his take:

 

“When you … have everything you need materially, how do you honor that part of your DNA that will forever yearn for more? It seems to me that the challenge is to turn this pursuit of ‘more’ away from material consumption and toward a ‘more’ that fosters more family, more community, more connections, more art, more creativity, more beauty.”

What more can we say about how to make best use of your time and money, this and every year? As always, we’re here to help you implement any or all of these best practices. In the meantime, we wish you and yours a happy and healthy 2021.

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