First Time Investors, The Time Is Now

Well actually, EVERYONE, the time is now. If you have been paying attention to the U.S. stock market, you know the last couple of weeks have been brutal. Nasty. Ugly. Insert your descriptive word here. The DOW dropped another 445 points today or about 5.5%. Add that to the 427 point drop yesterday and we are sitting at 7552.29. I am approaching a 50% loss in my retirement funds. Seventeen years of savings. Is the carnage over? Who knows? But, I do know this. I couldn’t be happier. I’m continuing to invest. This is a buying opportunity baby!

Why, you may ask? Because investors haven’t seen stock prices this attractive since 2001. And because I have at least 25 years till retirement. Which means I can buy more shares at a lower price today than I could a year ago. And I have plenty of time for the stock market to recover before I will need the money.

The Time Is Now

In the words of Anthony Kiedis, “There’s never been a better time, than right now!”. Many experts believe we may never have another buying opportunity like this in our lifetimes. Is that true? Time will tell. Has the market reached it’s bottom? Another question that remains unanswered. But I do know that it’s a losers game trying to pick the bottom of the market. I also believe that it is much wiser to get into the market after a 30-50% drop, than to listen to analyst who were telling people to buy at the markets all time high. Only to see their “investment” [speculation] disappear in a matter of weeks. Of course you only loose in the stock market if you sell…yada yada yada. Judging by the markets free fall over the past month it would appear many bought high and are now selling low. That’s a shame.

“Be fearful when others are greedy and be greedy only when others are fearful” – Warren Buffet

Are You Sitting On The Sidelines?

That all being said, I would be buying into the stock market at this point. HOWEVER, I would NOT recommend plopping a huge lump sum into the market. Don’t go invest your inheritance from crazy uncle Charlie. Unless of course you have taken the time to educate yourself about your potential investment and you have brass kahunas and are feeling froggy. Then by all means, go right ahead.

I would take a more conservative approach and begin investing a set dollar amount every month or dollar cost average into a highly rated index fund. Index funds own shares of all the companies in a particular financial market like the S&P 500, the DOW or the Wilshire 5000. These indexes try to replicate the up and down movement of the markets. This greatly reduces your risk, by diversifying your investment across many, many companies. I personally like the total stock market index funds. These track all of the markets. The index funds are available in traditional mutual funds or as Exchange Traded Funds (ETF). I like the ETF’s because they trade like stocks. In other words, you can set up a low cost brokerage account [like Scottrade] and buy the ETF’s just like an individual stock. Groovy. Check out iShares.

Get Started Today

A great way to get started in investing is using a service like Sharebuilder.com. Sharebuilder allows you to invest very small amounts at a time. As the name implies, you can build your position in a particular stock, over time. For instance, you can set up an automatic withdrawal of $25.00 from your checking account each week. You can then tell the system to invest in Company X when your funds reach $200.00. It is all handled automatically. Automatic is good. Automatic doesn’t forget. Automatic doesn’t decide to buy a new LCD instead.

Another way to invest in great companies is to DRIP into them. A DRIP or Dividend Reinvestment Plan, allows you to buy company stocks directly without a broker. You dollar cost average into a stock, a little at a time, over time. You invest the same dollar amount, say $100.00, every month. This month you might get 2.3 shares, next 1.9 shares. As the stocks price increases, you purchase less shares. If the stocks price decreases, you purchase more shares. And as the name implies, you get paid a dividend on your investment, which you can opt to have reinvested to buy more shares. Computershare.com manages a large group of company DRIP’s.

However you decide to start investing, there is one important thing to remember. Never invest any money you can’t afford to lose or can’t do without for 5 or 10 years. In other words, don’t invest your mortgage money or the like!

Wrapping It Up

So there you have it. My take on all this stock market craziness. The bottom line: the stock market will recover. Granted, it could take a while. But as history has showed us, when the market comes back, IT COMES BACK with a vengeance. Those who have the stamina to stay in [or get in] the game, should be rewarded nicely, all be it, down the road.

Additional Resources:

To learn more about ETF’s visit iShares.com

fool.com offers all kinds of financial information

Yahoo Finance is also a great resource

Tagged as: Anthony Kiedis • DRIP • ETF • investors • iShares • Retirement • Sharebuilder.com • stock market • warren buffet