Are you able to see good deals on stocks and ETFs in today’s markets? If you had asked yourself this question a month ago, likely you would have been able to provide a number where you would absolutely love to buy at.
Take VGRO for example. The Vanguard Growth ETF portfolio is one of the most popular ETFs to hold. It is a balanced fund, representing all sectors across major North American stock markets.
Note: The following example is for illustrative purposes only. I am not affiliated with the Vanguard ETF’s, nor should this constitute an investment recommendation. As always, investment decisions should be made based on professional advice and proper due-diligence.
On February 15th, 2020, VGRO was trading for $ 27.71 CAD. Without a doubt, most investors interested in this fund would have loved to get their hands on a share for $25.00 CAD.
Fast forward to March 13th, 2020. VGRO closed the markets at $ 23.29 CAD. Is VGRO a good buy at this price?
If you had done the research and determined that $ 25.00 CAD was a good price based on the underlying assets, making the purchase decision at $ 23.29 CAD should be a no-brainer.
Assuming that is the case, why are people so fearful of buying into the market during current volatility?
The answer lies in how close people are to the decision. While $ 25.00 might be an excellent price to buy VGRO at, the concerns about where the current bear market will bottom out at has people who were rational for years now acting irrationally. The cure for this is in placing Limit Orders.
A limit order allows investors to set a price that they are willing to buy or sell at. In the above example, if buying VGRO was a good deal at $ 25.00, a limit could be set to make that purchase once the price reached the $25.00 mark. In a long-term buy and hold strategy, this allows the investor to make smart, forward thinking investment decisions regardless of market conditions.
In this way, making the choice to pay $25.00 is actually easier than the decision to pay $23.29 right now. By eliminating the short-term emotions, investors can make sound investments at good prices.
The other benefit of this type of strategy is to reverse the emotions that you feel. Rather than being fearful as the markets are dropping, you get excited that you are closer to the bargain prices that you identified. This means you aren’t waiting and anticipating the bottom of the market, which is good because timing the market is impossible. Instead, you are doing your research ahead of time, and waiting for your chosen investments to go on sale.
Of course, the best way to invest for almost everyone is to skip all of this. Automating your investments will let you invest on autopilot, capturing any discounts currently found in the market. But if you are looking to invest a little more play money to take advantage of deep discounts currently available, try looking into limit orders. This will help you make rational, informed investment decisions without succumbing to the emotional roller coaster of the daily market swings.