With only two weeks left to 2024, investors are considering their next steps. Should you pile into stocks right now? Wait for the new year? Does it even matter? It might. Or it might not.

The January Effect

There has been a phenomenon going back more than 100 years that stocks -- or at least small-cap stocks -- tend to rise in January more than any other month. It has been called the January Effect, and several studies have confirmed it to some degree.

That would seem to imply that it would be better to invest in December (before prices go up) than in January. If you're a short-term trader, that could be true. But there's no way to know which stocks might lead that charge next month, so using a short-term strategy is risky.

If you're a long-term investor, you wouldn't take your funds out of the market after January, so the January Effect would just be one "up" period amid the many ups and downs of owning stocks for the long haul. If you invest new funds consistently and regularly -- which you should if you want to see your money compound over time -- you should invest in December and January just like you would at any other time of year.

However, as we close out the year, if you have extra funds to put to work, it makes sense to add to your investments now.

Retirement accounts

For certain types of tax-advantaged accounts such as traditional and Roth individual retirement accounts (IRAs), there are limits on how much you can contribute annually. If you haven't made your maximum 2024 contribution, you might want to add more before you can't anymore.

It's worth noting that for IRAs, the deadline for making contributions that apply to any given year isn't Dec. 31 of that year; it's actually April 15 of the following one. But if you're thinking about retirement and tax allocation strategies, now's a good time to get a move on it.

Lower interest rates

In September, the Federal Reserve finally began cutting its benchmark interest rate for the first time in four years, and the stock market has been rising on positive economic sentiment. Lower interest rates can stimulate economic activity, and that benefits many companies, particularly those in the financial sector.

That's a strong tailwind for the stock market. The Federal Open Market Committee is meeting again next week and it may cut interest rates again. If it does, that should lead to improved investor enthusiasm even before the beginning of 2025.

A new U.S. president

There's been a lot of optimism related to President-elect Trump's economic policies, and that's also contributing to market enthusiasm. If it proves to be more hype than substance, the stock market could deflate. But he's already benefiting as inflation has dropped back to more normal levels and interest rates were already coming down before the election. Those factors could translate into a better economy under Trump even if his policies aren't direct causes of it.

Analysts at some of the biggest banks are projecting a market rise, although more muted, in 2025. Analysts at Goldman Sachs, JPMorgan Chase, and Morgan Stanley all foresee the S&P 500 (^GSPC -1.11%) hitting 6,500 by the end of 2025, up 6.7% from today. Other analysts predict it will end next year even higher. The earlier you get your money in, the more you can benefit from increases should they happen.

You can't time the market

Ultimately, if you're a long-term investor, it doesn't matter much when you invest. Nobody can reliably time the market, and the January Effect isn't something to count on. Nor will the January Effect matter much if you plan to leave your money in those stocks, where it will hopefully grow and compound.

If you have extra money to invest that you can afford to risk, the earlier you put it into the market, the longer it will have to grow, and the more you'll have later on. If that's now, invest it now. If it's after the end of 2024, invest it then.

Go with the low

Even as the market swells amid optimism on Wall Street, don't ignore the uncertainty. In fact, too much widespread optimism should provoke caution. Don't forget Warren Buffett's advice to be fearful when others are greedy. With valuations looking high, there definitely seems to be some greed in the market, which is why it should be no surprise that Buffett has been a net seller of stocks for several quarters.

If you do add to your portfolio now, which I recommend doing, I would caution you to stick to safer stocks that are trading at reasonable valuations. This is not the time to get caught up in hyped-up or overvalued stocks -- not that any time is, but when the market itself looks more reasonably valued, there might be a better case for investing in a highly valued stock.