Now, Now, Now Is the Time to Invest

Just like a stopped clock is right twice a day, the best place you could've kept your money during the past year is on the sidelines. But that doesn't mean you should stay there forever.

Lots of people get intimidated by the thought of investing -- especially during times like these. If you're one of them, you've probably heard countless times how you can't afford to wait, and how the earlier you get started with your investing plan, the better off you'll be.

But if you never got around to filling out a mutual fund application or depositing money into a brokerage account, or if you've just kept most of your money in the bank, the huge drop in the market has actually rewarded your procrastination. Does that mean you should just keep waiting until everything stabilizes?

I'll give you my answer: not on your life.

Now is the time
I understand why you might feel differently. After all, everyone everywhere is talking about the chaos in the financial markets. It seems that the Dow hits new lows every day -- lows we haven't seen in a long time. People who've been investing for years have seen their portfolio values drop beneath the total amount of money they originally invested. In hindsight, you would've done better in ultraconservative investments like bonds and money market funds.

And there's no certainty that stocks have stopped crashing. Just this morning, stock futures halted trading because they'd fallen far enough to trigger limits. Dire predictions that seemed apocalyptic just months ago now seem like they could soon become reality. Even if you believe -- as I do -- that the sell-off is a dramatic, irrational overreaction to what's going on in the economy, that irrational behavior could go on for months ... or years.

But no matter how uncertain the stock market is right now, one thing is a virtual certainty: If you stick all your savings in bonds and cash, you're not going to reach your financial goals. With yields on Treasuries topping out at 4% as of this writing, you'd have to save a whole lot of money throughout your lifetime in order to gather a nest egg big enough for the retirement lifestyle you want.

The sale of a lifetime
I'm downright jealous of anyone who's just getting started with their investing. Not because they're safely in cash -- but because they have such a low starting point to measure their success. Formerly expensive stocks that many investors have found promising for years are now screaming bargains. Take a look at some of the most widely held companies:

Stock

1-Year Return 

3-Year Annualized Return

Dividend Yield

American Express (NYSE: AXP  )

(57.7%)

(19.9%)

2.9%

Microsoft (Nasdaq: MSFT  )

(27.5%)

(2.5%)

2.3%

Home Depot (NYSE: HD  )

(36.1%)

(20.4%)

4.7%

Merck (NYSE: MRK  )

(46.8%)

6.2%

5.4%

Texas Instruments (NYSE: TXN  )

(45.1%)

(17.3%)

2.6%

Dow Chemical (NYSE: DOW  )

(41.9%)

(14.7%)

6.9%

Verizon (NYSE: VZ  )

(37.6%)

1.5%

6.6%

Source: Yahoo! Finance.

On top of the big markdowns on most stocks, falling prices are also making dividend payouts look increasingly attractive. During the bull market of the late 1990s, dividend yields on the S&P 500 dropped to nearly 1%. Now, they're topping 3%. As a result, you don't just have the potential for large capital gains when the market rebounds -- you'll also get paid while you wait.

How to start
If you've never invested before, there are plenty of ways you can get started:

  • Mutual funds. Buying fund shares is as easy as contacting a fund company. Most funds allow online transfers, letting you open an account and invest electronically.
  • Brokers. Opening a brokerage account to buy stocks is also relatively simple. There are plenty of good, inexpensive discount brokers to choose from. Get the full scoop in our broker collection.
  • At work. If you're not participating in your 401(k) plan at work, it's definitely worth the effort to start now. You may well be giving up free money by not taking advantage.

Whatever method you choose, don't wait any longer. No matter how safe it feels on the sidelines, missing out on panic-sold stocks could be the biggest investing mistake you'll ever make.

For more on investing in today's markets, read about:

To learn more about how dividend-paying stocks can give you the best of both worlds from your investments, take a look at our Motley Fool Income Investor newsletter. You'll find lots of stock recommendations, along with useful advice and commentary from our experts. Best of all, it's completely free for 30 days.

Fool contributor Dan Caplinger started investing early and never looked back. He doesn't own shares of the companies mentioned in this article. Dow Chemical is a Motley Fool Income Investor pick. Microsoft, Home Depot, and American Express are Motley Fool Inside Value picks. The Fool owns shares of American Express. Try any of our Foolish newsletters today, free for 30 days. The Fool's disclosure policy is a helping hand.


Read/Post Comments (24) | Recommend This Article (37)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On October 24, 2008, at 1:49 PM, oldgoldbug wrote:

    You are probably right about this being a good time to buy for the long term. But what about those unfortunate enough to have gone through the last year fully invested and now looking at huge losses? I suppose it bothers me that you guys seem to always be on the buy side and no one (at least that I've read) says "sell". Or at least brings up an exit strategy so the buyer of GRMN somewhere over 100 can get out before 20 something. As far as I've seen you've been bullish all the way down. Maybe that will turn out to be right in the long term but as Keynes said "In the long run we are all dead". Hopefully our portfolios won't be.

    BTW, wouldn't it be instructive to point out that bonds can be an attractive alternative to the equities markets?

    I hope the move up in equities will be even partially as fast as the catastrophic move down.

  • Report this Comment On October 24, 2008, at 2:50 PM, CrankyTexan wrote:

    oldgoldbug, people who could not afford a market crash should not have been in stocks in the first place. Stock investing is about decades, not months.

  • Report this Comment On October 24, 2008, at 5:09 PM, poker1949 wrote:

    I am also "fully invested", but also "fully diversified". I have 50% of my retirement funds in well diversified stocks and GREAT companies, some of which haven't been battered that bad actually. I refuse to put anything in the stock market that I don't need for 5-10 yrs. The rest of my portfolio is in various 3-4% interest bearing accounts...not the best, but at least safe and easily accessible in an emergency. I don't worry about my stocks, they can take another 10 yrs. to recover, and I'm buying more positions all the way down.

  • Report this Comment On October 24, 2008, at 5:36 PM, simonkathrein wrote:

    Thanks for the opinion Dan... but I would rather not try and catch a falling knife. I won't be touching any of these stocks, probably for several years. The baby boomers haven't even started to retire yet, and if you remember from Harry S. Dent's information... that's the reason (their lack of spending) that the US will likely see a depression from 2010 to about 2015 until the busters take over the spending wave. The same thing happened in Japan in the early 90's and completely devistated their economy.

    Thanks, but no thanks.

  • Report this Comment On October 24, 2008, at 6:38 PM, Foolledy wrote:

    There will be more to come in the slide side yet, the companies mostly are reporting good number today because the inertia of the backlog during the first part of the year. So what do you think it will happend in the Q4 with this credit crisis in play and lack of confidence of the consumers?

  • Report this Comment On October 24, 2008, at 6:56 PM, Slipswitch wrote:

    Oldgoldbug is right. MF is always on the buy side, yet implies that now is the time to put your cash to work. I read in one comment that Bill Mann, of Hidden Gems was invested in gold. He didn't tell us to buy that, instead recommending stocks that were 10% off their highs, riding them down to 75% off the high. The only sell strategy I've seen until lately has been to ride them down 90% like FMD and Select Comfort, then sell them and then take them off the best and worst performing lists.

  • Report this Comment On October 24, 2008, at 7:40 PM, Paulio50 wrote:

    I'm betting that when and if "The One" is elected, the realization of the future consequences of his social and tax policies will finally hit home. The market will sink a lot more. That is when to buy. Until then sit with your cash on the side.

  • Report this Comment On October 24, 2008, at 8:22 PM, Jadav wrote:

    I'm thinking long term (5-10 years) and was wondering if it would be wise to either jump in to AIG or LEH and dump a few grands and just forget about it for a few years while it grows. Does that sound like a good strategy?

  • Report this Comment On October 24, 2008, at 9:02 PM, pocopanda wrote:

    Why is now the right time to Buy?

    3rd quarter earning are just coming out. For the oil companies, their 3rd quarter earning will be much higher than their year end earnings.

    The OPEC countries have just lowered their oil production quotas.

    The debt is balloning.

    I need a really clear thinker to fully explain why now is the time to buy versus January 2009 or April 1 2009.

    So far, I see nothing that clearly says we have hit a market bottom.

  • Report this Comment On October 24, 2008, at 11:28 PM, ReillyDiefenbach wrote:

    Once again, I have to ask, where is the upside potential, near term? I have to ask as well, is there anyone at Motley Fool who would ever sell any stock for any reason? Paul O'neill says any greater loss than about eight percent, and you should sell, and boy howdy, am I glad I listened to what he had to say, because I sold each and every equity last November before it was too late.

    Who is selling a house for more than they paid for it? Who is buying a car? GMAC is now requiring a 700 credit score before writing a car loan. Sound like a path to riches to you? Who is hiring workers? Who knows what will happen to the economy? This recession might last years. From my adanced age of sixty years, I think your advice to buy is misguided, to put it mildly. Home Depot? The place you can't find anyone to help? You can't be serious. I'll jump back in only when there is some confidence, some solid ground instead of a ghastly slippery slope inhabited solely by daytraders and sleazy hedge fund managers. I want a DISTINCT UPTREND. Not a minute sooner will I buy, thanks anyway.

  • Report this Comment On October 25, 2008, at 1:09 AM, markwg1 wrote:

    Simple reason people are so fearful in this market is because this bear market (unlike the 1987, 1997 and 2001), is the result of excessive borrowings, leverages, credits in the past 50 years... creates massive amounts of personal, corporate, goverment debts! this giant bubble is now going to burst... which lead to rising number of bankruptcies, foreclosures, libor rate, economies at risk of depression.

    Another strange thing is yen going up up! however, other emerging market currencies going all the way down... is this normal? I have never seen something so strange in my life... and libor is rising slowly again after many countries inject trillions of $$ into the banking system in the past month.

    By the way, another bank just failed! (after Friday market closed): Georgia Alpha Bank.

    You must be very brave if you want to buy in this market bottom!

  • Report this Comment On October 25, 2008, at 1:11 AM, donj60 wrote:

    All my cash investments are up 3to 4%. All my stocks are down 60%. Motley Fool and none of the others ever says sell. Not good.

  • Report this Comment On October 25, 2008, at 6:34 AM, sadone wrote:

    If You Purchased $1,000 worth of

    Nortel Stock one year ago it would now be worth $49. With

    AIG, you would

    have $16.50 left of the original $1,000. And with Worldcom,

    you would have

    less than

    $5 left.

    If you had purchased $1,000 of

    Delta Airlines stock you'd have $51 left. With United

    Airlines you would

    be left with nothing.

    Now, If you had bought $1,000

    worth of Beer a year ago, drunk it all, then turned in the

    cans for

    recycling you'd have $67.50.

    Based on the above, the best current retirement investment

    advice I can

    give you is to drink heavily and save your cans.

    I call this the 401-Keg Plan.

  • Report this Comment On October 25, 2008, at 8:52 AM, newhouseri wrote:

    Jadav,

    I hope for your sake your kidding. Those are probably two of the absolute worst run companies and the most risky stocks I can think of. Believe me I have made plenty of risky investments in my early investment years, I know risky when I see it.

    I'm sure you heard about the Billions of dollars earmarked to help AIG. Did you hear about the top executives at the company going on an extravagant vacation to tropical island for a meeting spending 400k in a few days at a spa there? That's horrible management. Would you want to invest in that? The management ran the company into the ground making bad investments. That’s what your buying. You would be buying that management team.

    National City Mortgage was trading around 4 dollars a couple of weeks ago after the bailout plan was announced. The stock came back down to about 2 yesterday with the big sell off all week. Yesterday, the company agreed to be bought out by PNC Bank for about 2 per share. I'm sure there were many other investors like you that thought, "wow the governments bailing out this bank", this is a sure thing. I just need to buy and wait. This same thing can certainly happen to AIG or Leman

    Buy companies that are highly profitable, that have lots of cash, little debt and have been around for more than a few years with good management otherwise your just gambling.

  • Report this Comment On October 25, 2008, at 1:21 PM, jhp19 wrote:

    I no longer subscribe to Motley Fool. I wonder if it was a mistake. Has anyone made money following their suggestions? As one who questioned their wisdom on buy buy buy lately are you wondering why why why?

  • Report this Comment On October 26, 2008, at 10:51 PM, juzhappytobehere wrote:

    Here are some market stats...

    There has never been a 3 month period starting in July of 1933 where the Dow has closed down more than 28%. Never. And about 90% of the time, a decline of about 26% in a 3 month period marked the bottom.

    I think the market could retest the lows of 7880, which is where I'm going to buy, and then be flat to slightly down until Jan. After Jan it should go up to retest at least 11000, which is where I'd sell about half of my positions. Following the peak, the DOW usually bottoms 18 months after the 3 month period in which it peaked. I think this will follow the same pattern as 1973-74. Down 44%, and then exploding higher after Jan. The problems in the economy are strikingly similar to then, as far as the unavailability of credit, the housing recession, high unemployment, and rising commodities prices. While the reasons for those problems and their solutions are quite different, the relative magnitude is about the same especially considering the amount of leverage that has to be unwound. No matter what happens, we're not going to close any lower than 7880 from the beginning of Oct until the end of January, which was down 44% for the year and 29% for the month.

    Remember: the "this time is different" argument never works on the way up, or on the way down.

    Here's the chart.

    http://finance.yahoo.com/charts?s=^DJI#chart2:symbol=^dji;ra...

    Just imagine where you'd be if you bought in December of '74 which would have taken some serious marbles considering this is what the economy was like.

    http://www.time.com/time/magazine/article/0,9171,908956,00.h...

  • Report this Comment On October 27, 2008, at 11:59 AM, vest0r2 wrote:

    The "shadow banking" world of derivatives has not been addressed -- the "bailout" was a gift to Goldman Sachs in honor of their recent successful coup in the Treasury Department. I do not believe that any bank has come forward and revealed their actual exposure to toxic off-balance sheet debt. So not only has the OTHER shoe not dropped yet, the FIRST shoe has yet to drop. That $700 billion the Congress elected to give to the banking industry is being hoarded.

  • Report this Comment On October 27, 2008, at 2:35 PM, simonkathrein wrote:

    Your right about those market stats (above) however I feel that this time is a bit different. You have all the baby boomers starting to retire soon, and the baby busters are not quite old enough yet to make a huge impact with their spending and investing. I could be wrong, but I just don't see a quick recovery. If one feels they simply must buy now, then at least pick large caps that pay a good dividend and are in a business that will still produce cash flow in tough times. As an example, some of the Canadian banks are paying 5-7% dividends right now. Even though they have some sub-prime exposure... it's really minor for them. At 6% dividend... even if the market is horrible for several years... your risk is mininmal over the long haul.

    www.stockcapitalist.com

  • Report this Comment On October 29, 2008, at 12:47 AM, NEWSMONKEY wrote:

    Sell this rally if you know what is good for you. The reasons are simple and relatively straight forward. Firstly, nothing has changed if anything things have gotten much much worse. The dominoes are falling one by one and leverage is getting wrung out everywhere. Consider Russia which had about 500 billion in reserves and a dollar squeeze of over 300 billion due to maturing dollar denominated debt. Russia is an outlaw in the financial markets consider this action they took today: Court Freezes Altimo's Stake in Vimpelcom http://online.wsj.com/article/SB122516354059275209.html?mod=...

    Further consider these articles today concerning the european nations and England

    Europe Faces `Huge Threat' as Emerging Markets Slide http://www.bloomberg.com/apps/news?pid=20601068&sid=aahr... or this article http://blogs.wsj.com/economics/2008/10/24/emerging-market-as... or this one which puts the The scale of euro zone loans at about $2.5 trillion in foreign-currency loans to emerging markets. http://news.bbc.co.uk/2/hi/business/7693020.stm

    European banks have lent heavily to crisis-stricken eastern European countries such as Ukraine, Hungary and Belarus. Their exposure which came to a head today makes the US sub prime mess look like child's play given there relative GDP size the problem is more than 5 times that of the US problems. Add to that Iceland, Turkey, Dubai, New Zealand, Argentina and Brazil thrown in just for good measure. These are problems only just coming to light today or in recent weeks. The world is an absolute mess and they are starting to fall like dominoes. Unfortunately once a massive deleveraging like this begins it won't stop any time soon.

    If you are kicking yourself for having not sold sooner don't miss this gift. The rally may last a day or a week but be certain it wont last. This is a prelude to an utter collapse. Consider this article by Nouriel Roubini, Who is he? He was the guy calling for this disaster over two years ago. The New York University professor who predicted the financial crisis in 2006 Bloomberg (October 27, 2008): Roubini Sees `Significant Downside Risk' for Equities http://www.rgemonitor.com/blog/roubini/ If you are thinking about buying now you should spend some time on his blog and I guarantee you won't.

    The monkeys on CNBC (my brothers) call for a bottom being made about 100 times a day. Before you commit the last of your capital trying to buy the bottom ask yourself this question. Who is dumber them for losing the first 35% or me for losing the next 35% because I thought I was smart? So what is the answer? Are you really that smart? Are you really that well informed? Or do you make most of your decisions based on what you see on CNBC?

  • Report this Comment On October 29, 2008, at 5:26 PM, breathless9 wrote:

    Well, gee... If I've learned anything over my investor lifetime, it's to go in the opposite direction of a panic stampede

    of the type we've just been witnessing.

    When apartment houses were going begging, I bought and prospered. When stock in good companies reached bargain basement levels, it was time to buy. Banks in particular have suffered

    recent investor disenchantment. So, I have bought, probably most notably, The Bank of Ireland, which has been in business since the 18th Century.

    Good dividends and at a P/E ratio now of just .8. Such a deal! :)

  • Report this Comment On October 31, 2008, at 3:23 AM, dividendgrowth wrote:

    The buy point comes when TMF solicits short ideas, as they did during the last market bottom in 2003.

  • Report this Comment On October 31, 2008, at 7:35 AM, trevonline wrote:

    This may not be the appropriate place to say this but Im going to say it any way.

    Never in my lifetime(im a boomer) nor my perants life time has anything like whats happened in the WORLD economy ever happened on the scale of whats happening right now.

    There have been similar situations that have affected parts of the world economy which has had a minimal kick on affect in other parts of the world.

    But this Global.

    No one has learnt from these smaller scale recession/depression

    occuraneces.Each and every one getting slightly worse and more

    Globally spread

    I live in australia and there are some starteling trends emerging

    that will ultimately end up with........

    One World Currency and then One World Govt

    In my time 52 yrs has anyonr ever heard of Britain bailing banks out.

    Europe doing the same USA,australiaParts of Asia etc

    Here in OZ the govt has put up a multi Billion guarantee for

    bank deposites and superanuation deposite and frozen them.

    When the big 4 banks here in Oz are announcing Multi Million

    Profits.

    The oz economy is in surplus GO Figure

    The problem is not to prevent a run on the banks the problem is a bail out of the stock holders.

    This wll then cause a run on the banks

    The govt Guarantee is upheld with the banks putting their hands up for thier share

    Oz economy goes into deficset to uphold the G uarantee

    Consumers are screaming for increased services....welfare,no jobs etc

    This where it get scary the Govt goes to the IMF for a loan

    inflations goes through roof more money from IMF

    Now multiply this for several countries all at he same time

    IMF then steps in under the World bank wipes the Debts of countries if they agree to take on a COMMON currency

    Dont believe me look at Europe and the Euro

    Trust me If it Doesnt happen this time it will happen in the Future

    One world currency and one world GOVERNMENT

  • Report this Comment On October 31, 2008, at 3:13 PM, burrowsx wrote:

    There is another reason to remain on the sidelines, at least until Nov. 4: decrease demand for stocks, however little a small investor might have, to eliminate the possibility of "good news" for the current administration's disastrous financial policies.

  • Report this Comment On November 02, 2008, at 10:32 PM, ohhhvictor1 wrote:

    I really think that this is the exact time to buy..While I am writing this article, I am buying tomorrow..You need to buy and hold gopod companies when the prices are down.It just can not go downer. The financial market has been hit but the p/e and the financial situation of a lot of companies are not a true reflexion or the prices.Do you think that all the companies in USA are going bankrupcy? If you do sell everything!

    Otherwise stay with companies and buy this days because the prices , and the reflexion in the book value is really ridicoulus.Just follow the masters: graham, buffett, Lynch,etc...

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