In this section, we answer the question on any investment advisor’s mind: “How long is the best time to buy or sell your stock market index fund?”
While the time frames we’ve listed below each generally range up to 15 years, as these charts are drawn from a 15-year time horizon, a 10-year time frame is probably best.
If the stock market is too risky to own, and you want to invest in a safer investment, you may want to invest for a higher time horizon (up to 20 years instead of 15 years), even if you are willing to risk much greater risk.
How long are the best time frames to buy or sell?
To understand the importance of the 10-year time frame, let’s look at the following chart of the S&P 500 using 20-year time frames.
The blue line of the chart corresponds to the S&P 500 in each of these time frames at equal risk to the S&P 500 in the 20-year timeframe that is depicted by the red line. A stock that traded in the S&P 500 at its peak would be priced below the red line on this chart.
So if you want to buy a stock in the stock market of the 20-year timeframe, that stock is priced between 0 and 100. This price tells the general public that the stock will continue to rise.
So if you choose to buy a stock of the S&P 500 in the red line and you can sell the stock at market level within the next five years, your long-term return will be 0.00.
If you would like to buy a stock of the S&P 500 in the blue line, then you want to buy the stock at some point after its peak. This time frame is usually up. So the stock can trade for as high as 100.
If you’d rather wait five years and buy the stock, this means you might find the stock trading at zero. However, in that 15-year span, the stock could be trading at an average of over 100.
Therefore, if you want to buy that stock at some point in the near future, you risk nothing. In the near future, it will likely trade above your initial investment.
If you’d prefer to buy the stock 20-years from now, in order to protect yourself in the event of a market collapse, you just need to hold the stock until you sell it at some
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