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Now is a perfect time to be buying stocks

Between June 2012 and October 2013, share market investors enjoyed enormous returns – particularly in comparison to returns that would otherwise have been recognised from other investment classes such as term deposits or bonds.

In that time, the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) rose a massive 29%, which was largely driven by huge gains from corporations including the big four banks, Telstra (ASX: TLS), biopharmaceutical giant CSL (ASX: CSL) and supermarket behemoths Woolworths (ASX: WOW) and Wesfarmers (ASX: WES).

However, the pain of watching our portfolios fall in value is always greater than the pleasure of watching it grow. Since the end of October, the market has plunged 4.8% and the effects have been widespread.

For instance, since hitting a record high of $79.88 per share, Commonwealth Bank (ASX: CBA) has shed 5.9%. Likewise, Westpac (ASX: WBC), ANZ (ASX: ANZ) and NAB (ASX: NAB) have also fallen 9.9%, 9.1% and 9.7%, respectively. Gains from various other blue chip stocks have also been reversed in that time, which has had a negative impact on smaller areas of the market.

Based on this, many investors have been contemplating whether now might be a good time to get out of stocks. After all, the rally has been strong and now, with signs that the US Federal Reserve could begin tapering its stimulus program, the market could continue heading in reverse.

Whilst it is painful to experience these setbacks, it is part of investing. We are investing for the long-term in companies that we believe will be bigger and stronger in years to come, as opposed to investing in short-term price movements.

Furthermore, despite the recent fall, it is important to also remember that the benchmark index has still delivered us fantastic returns and is, perhaps, just taking a breather. This calendar year alone it has still risen 11.5% despite the recent decline.

Foolish takeaway

Instead of exiting the share market out of fears of a greater decline, long-term investors should embrace the falls and take advantage of discounted stocks.

 

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Motley Fool contributor Ryan Newman does not own shares in any of the companies mentioned.

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