Investors may be wondering whether now is the best time to invest in ASX shares, or whether it would be better to wait for a stock market crash.
If we could choose what price to invest in an ASX share or an exchange-traded fund (ETF), we'd choose the lowest price possible. It's normally during a bear market when we're presented with the lowest prices.
Why it makes sense to invest during a stock market crash
I think market prices are normally quite fair most of the time. But, occasionally, the market becomes a bit too fearful (or exuberant).
There's typically some world-changing event that causes a large decline to happen. Look at the Wesfarmers Ltd (ASX: WES) share price since 2007.
Towards the end of the 2000s, there was the GFC crash. In 2020, there was the COVID-19 crash and last year, there was the fear about inflation and interest rates.
Great prices don't happen without any reason for them. There has to be something seriously concerning so it can take bravery to invest during times of significant market decline. Yet it's during times of indiscriminate selling that I think the best opportunities arise.
The great investor Warren Buffett once said:
To refer to a personal taste of mine, I'm going to buy hamburgers the rest of my life. When hamburgers go down in price, we sing the 'Hallelujah Chorus' in the Buffett household. When hamburgers go up in price, we weep. For most people, it's the same with everything in life they will be buying — except stocks. When stocks go down and you can get more for your money, people don't like them anymore.
It makes a lot of sense to invest during a stock market crash. But should we wait?
Why investing now may be better
Crashes are unpredictable — that's why they're such a surprise. There was a 12-year gap between the 2008 GFC fall and the 2020 COVID-19 crash. If COVID-19 hadn't come along, it could have been even longer.
My crystal ball isn't working at the moment, so I can't tell when the next bear market will start.
There's a possible scenario where someone could save cash during normal times, earn interest, and then invest it during a crash.
Bu, there are a few negatives with that idea. Firstly, it would only work for someone who's got the right mentality to invest during rough times – you wouldn't want to hesitate and miss out on the best prices. Also, what would be the trigger point to start investing? When the market is down 20%? 30%?
I think a key factor as to why it could make more sense to invest now is because plenty of the good ASX shares keep rising over time.
Look back at the Wesfarmers share price graph. Its 2020 crash low was just going back to the prices it was in 2019. It's 15% higher today than the share price just prior to the COVID-19 crash in February 2020.
There have been plenty of examples of growing businesses, such as Xero Limited (ASX: XRO), Pro Medicus Ltd (ASX: PME), WiseTech Global Ltd (ASX: WTC), and Altium Limited (ASX: ALU) where it would have been a mistake to wait.
If a share price starts at $10 and over a few years rises to $40, then there's a 50% market crash (extremely rare), that share price would go back to $20. That's still a 100% return from its starting value, which is much better than what someone could get from a bank account. Of course, not all investments go as well as that, but it's a demonstration of how waiting may not be the best strategy.
Foolish takeaway
I think it makes a lot of sense to invest during stock market crashes, but I wouldn't wait to invest if we can see some great opportunities today. Of course, we don't have to invest today, but I wouldn't sit around for years either.
