Is it finally safe to buy ASX shares now?

If ASX 200 stocks have now bottomed, here's how to capture all the coming gains.

| More on:
Four ASX share investors in black suits hide behind trees with binoculars and other surveillance equipment, peeking out to see what's happening.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Share markets have put on a ferocious resurgence recently, after United States inflation figures came in lighter than expected last week.

In fact, the S&P/ASX 200 Index (ASX: XJO) has now gained a tidy 6.9% over the past month. Not bad after being down 14.9% year to date.

Because several consecutive steep interest rate rises are now behind us, some experts have speculated stock markets may have passed the bottom.

"There is a rising chance we have seen the low in shares," said AMP Ltd (ASX: AMP) chief economist Dr Shane Oliver earlier this week.

"At last, it seems some of the bad news for shares appears to be abating."

So what do ASX share investors do now?

How can you call the bottom when things are still so bad?

Many investors might be wondering how experts can call the bottom when inflation is still rampant — it's 7.7% in the US and 7.3% in Australia.

American financial expert and long-term buy-and-hold advocate Brian Feroldi reminded his newsletter subscribers that the stock market is "a forward-looking machine".

"It doesn't care about where we are. It only cares about where we're going," he said.

"This is why markets tend to bottom while the headlines still look awful."

He recalled some of the new headlines on 9 March 2009, which was when US share markets bottomed in the midst of the global financial crisis:

  • "Collapse of the financial sector harder, deeper than tech wreck"
  • "US to push for global stimulus"
  • "China warns of severe fiscal conditions"
  • "UK says markets need crisis plan"
  • "The bear growls louder"
  • "Jobless scars will outlast the recession"

Feroldi pointed out how there was absolutely no good news or optimism at the time. Yet the share markets started their rise from that point.

"Do you see any good news? We sure don't. In fact, it wasn't until April 2010 — 13 months later — that unemployment finally peaked," he said.

"Yet, if you… waited on the sidelines until April 2010 to start investing in stocks again, you would have missed out 80% of the market's gains."

How to capture the ASX share recovery

Of course, no one should expect a smooth, linear upward progression from here. ASX shares will experience many dips ahead.

But for Feroldi, there's only one way to take advantage of this potential bottom.

"The takeaway is that you can only capture all of the stock market long-term gains by remaining invested," he said.

"That's easy to do in theory, but damn hard to do in practice."

The lesson is that none of us will know whether this is the bottom until much later — maybe six months down the track, or even a year.

But if you wait until then to buy shares, it will be too late. You will have missed all the spectacular recovery gains.

So buy now with a long-term horizon.

"We certainly hope that we've hit a bottom and that the economic picture gets better from. However, the only way we'll know that for sure will be with the benefit of hindsight."

Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Investing Strategies

Three people in a corporate office pour over a tablet, ready to invest.
Dividend Investing

2 of the best ASX dividend shares to buy in July

Bell Potter has named these shares as best buys this month.

Read more »

A woman wearing dark clothing and sporting a few tattoos and piercings holds a phone and a takeaway coffee cup as she strolls under the Sydney Harbour Bridge which looms in the background.
Dividend Investing

1 practically perfect Australian stock down 45% to buy now for lifelong income!

Income investors might want to check out this beaten down stock.

Read more »

A man with a wry smile on his face is shown close up behind ascending piles of coins as he places another coin on top of the tallest stack representing rising dividends
Dividend Investing

Here are the 3 biggest dividend payers in my ASX stock portfolio today

These three stocks pour cash in to my portfolio...

Read more »

A senior investor wearing glasses sits at his desk and works on his ASX shares portfolio on his laptop.
Dividend Investing

Overinvested in Fortescue shares? I'd buy these ASX dividend shares

Fortescue may not be the best choice for dividend income.

Read more »

Concept image of a businessman riding a bull on an upwards arrow.
Growth Shares

3 ASX growth shares to buy before the next bull market

These shares could fare well in the next bull market. Here's what analysts are tipping as buys.

Read more »

Broker checking out the share price oh his smartphone and laptop.
Blue Chip Shares

2 ASX blue-chip shares offering big dividend yields

These businesses are predicted to pay significant passive income to shareholders.

Read more »

Close up of woman using calculator and laptop for calculating dividends.
Dividend Investing

Forget term deposits! I'd buy these two ASX 200 shares instead

I’d rather buy these stocks for income than hold a term deposit right now.

Read more »

A man in a suit smiles at the yellow piggy bank he holds in his hand.
Dividend Investing

Forget CBA shares and buy these ASX dividend shares

Analysts are bearish on CBA but bullish on these shares.

Read more »