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Many people wait years or decades before putting their investing dream into action, if ever. But if you’ve never invested before and were waiting to start buying stocks, I think now might be a good time to do so. That’s exactly what I’m doing right now, even though I’m not a first-time investor.
Here are three reasons why.
1. Attractive stock valuations
The key to successful investing is buying the right stock at the right price, although another way of thinking about it is ‘at the right time’.
The last few years have been painful for the economy. One consequence of this is that many shares of high-quality companies have traded relatively cheaply.
A common way to value stocks is to use a price-earnings (P/E) ratio, basically dividing a company’s market capitalization by its earnings. Right now, a lot of companies that I think are attractive are selling at low P/E ratios. Typically, the lower the P/E ratio, the cheaper the company’s valuation. Next it’s 11, legal and general it’s at 6 and barclays It’s at 5.
That could reflect risks that investors believe could hurt future earnings. In fact, although Barclays has a low price-earnings ratio, I have no plans to buy bank shares for my portfolio in the near future, as the banking industry continues to face considerable uncertainty, in my opinion.
But the overall picture of the UK stock market is one in which many good companies are selling at attractive prices. That could suddenly change, so I’m bargain shopping right now while I can.
2. Imminent Deadline for Shares and Shares ISA
Next week is the deadline for current contributions to a Stock and Stock ISA in the current tax year. This works on the ‘use it or lose it’ principle. After the deadline, I will be able to contribute to next year’s ISA. But any unused portion of my £20,000 allowance for the current year will expire forever.
To be clear, that’s not necessarily a reason for me to rush out and start buying stocks. The deadline is for contributions, so I may be able to deposit money into my ISA before the deadline even if I don’t have immediate plans to buy shares.
But with so many offers right now, I’m ready to buy.
3. Take a long-term view
I believe in long term investment. But how much is the long term?
Basically, the earlier someone starts investing, the longer their overall time frame as an investor. That can help them benefit from the positive impact time can have on investment results.
There is a caveat, which is that even good stocks can be too expensive, just as they can sometimes sell for much less than they are worth.
So you wouldn’t start buying stocks right away unless you felt you could find shares in large companies selling at attractive prices. Fortunately, in today’s market, I think there are plenty of those!
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