If you’re the type to try new things at the beginning of the year, be aware when investing. The January Effect could cost you big money. Around this time each year, shady investment firms show how they’ve managed their client’s portfolios to increase their earning’s growth. Not only is this inaccurate, but it could cost big money. Before investing, do some research. The more you know, the better your chances are in making long-term profits.
What is the January Effect?
The January Effect is the seasonal trend for stocks to increase in January. Since the early 20th century, the stock market rose in January 62% of the time. As a client of an investment firm, the rise seems successful. However, after January, share prices begin to decrease. The shift makes short-term investors lose money. It can also make a new investor very confused.
Is long-term investing more successful?
There are several tips for long-term investing, some of which include patience. While there are no guarantees in the stock market, most long-term investments include lower risks. If you are new to investing, most firms would advise going the long-term route. Furthermore, they may suggest bonds or mutual funds as added options.
What does the price-to-earnings ratio have to do with the January Effect?
The price-earnings ratio gives you a general measure of whether your investments are overvalued or not. A low P/E means the company is doing poorly or is undervalued. A high P/E gives the opposite result. Price-to-earnings ratios are affected by January’s typical variations. When you assess a company’s stock, keep your view wide.
Things You Need to Know Before Investing in Stocks
Before investing in stocks, here are some general things you should know.
1. The January Effect is real.
2. “Window dressing” also affects the markets.
3. You should know the level of risks you’d like to take.
4. You should also know how to diversify your investments.
5. Have a plan for your profits.
6. Lastly, have an emergency savings fund (in case your investments don’t pan out).
Markets rise due to the January Effect
If you dream of retiring as a multi-millionaire, investing is one place to start. More often than not, the markets rise every year due to the January effect. As you gain stock-buying knowledge, each fluctuation will become easier. Use your money wisely, and remember to talk to a professional before any transactions. Our Achieva Wealth Advisors are experts at investing at any stage in your life and are available to help our members navigate the, often confusing, market. Be sure to call or visit a branch today!