Foolish Four Portfolio
By
Taking the Plunge
And coming up smiling
RESTON, VA (Oct. 1, 1999) -- One of the most frequent questions we get around Fool HQ is: Should I invest now, when the market is so high, or wait until it "corrects"?
I know what you are thinking: The market just corrected. Why is she writing about that question right now?
Very true. In fact, I haven't actually seen that question for many weeks, which means that NOW is exactly the right time to discuss it. (Even though the question we get now is: Should I invest while the market is in such turmoil?)
The answer in both cases is the same. Actually there are at least two answers, and they both apply equally to both questions.
Answer #1. Yes. We would love to have a crystal ball that pointed out the best times to enter the market, and there is no doubt that if you knew when those times were, your returns would be better. But whether the market is up or down at any one point doesn't say much about what it is going to do in the short term. You could wait for a better time and it might come. However, given the market's long-term record (it trends up), the odds slightly favor the proposition that a better time will never come.
Answer #2. No. But not because of the market. If you are asking these questions, you probably need to do some more homework. We suggest that you take a little more time to educate yourself about investing Foolishly for the long term. A good place to start is the 13 Steps to Investing Foolishly in the Fools' School area... oops, sorry. I was slipping back into Customer Service mode there. The fingers just kept on hitting that familiar sequence of keys.
Taking the plunge is scary. No doubt about it. What if there is a rock under the water? What if people laugh at my dive? What if my top comes off?
Well, you want to check out that water first. And you want to stop worrying about what other people will think. And you need to make sure your suit is properly fitted. And if you're still scared, maybe you should walk back around the pool and try the steps (yes, the 13 Steps). But you want to get in the water one way or another fairly soon.
The real answer is education -- learn about investing in general, decide on a strategy that you feel comfortable with in spite of what everyone is going to say about it (and they will!), and make sure you understand exactly what you are doing and why. If the thought of putting a large chunk of money into the market all at once is what's keeping you out, then find a way to ease in, either through an index fund or DRiPs.
Now comes the really hard part. For a fair number of folks (about 30%, if you assume an even distribution of investment timing), the market will go down soon after they invest. Panic, anguish, fear.
Folks, that's how it is supposed to work. If the market only went up, the return on your investments would be no higher than the average money market or bond fund. Is that what you want?
Stock investors are rewarded with higher returns because they are willing to go through that panic, anguish, and fear. Because at any time, they may find that if they need their money in a hurry, it might not all be there.
If you invest in individual stocks rather than the market as a whole, the risks are greater. While the market as a whole is highly stable over the long run, individual companies can and do collapse and investors lose everything.
This is why we Fools (and every other responsible investing advice-giver) repeatedly stress investing only money you won't need for at least five years, carefully selecting your stocks and/or your strategy, and diversifying your investments so that if some of those carefully selected stocks are not what you expected, you won't lose everything.
Understanding that stock investing must carry short-term risk and investing only your excess cash carefully can almost make the panic, anguish, and fear go away when the market roils.
When you've done all that... jump.
Fool on and prosper!