The rule says to buy stocks low and sell high.
The reason there are rules for investing is simple: you always have to keep your emotions in check.
This week, the rapid spread of coronavirus and lack of containment in countries outside of China rocked global markets. All three of the major indices fell into a correction in a matter of six days. The Dow logged its worst week since early 2008 and the S&P 500 Index plunged by more than 11% into correction territory. Also, government bond yields have fallen to record lows.
I’m not saying that you deploy all of your cash position into the markets, however, you need to invest some of your available cash into positions that show promise over the next 12-18 months. This correction erased gains of almost all stocks equally with no regard to individual stock outlooks.
Therefore, you are now able to pick up some high-quality stocks at discounted prices.
Of course, you need to have money available to buy stocks when they go on sale. This is why it is important to rebalance your portfolio and take some profits off the table when the market reaches new highs. If you didn’t take some profits at the end of 2019, you (or your current financial advisor) are not paying attention to your account.
Again, you can’t buy stocks on sale if you don’t have the money.