Now is the Time to Buy Stocks

Here's a piece from USA Today that details all the reasons most investors are depressed including:

• The credit crisis
• The housing meltdown
• Inflation
• Earnings

But they say that this is really a time that investors should be enthusiastic about investing -- and pouring money into investments as fast as they can:

Investor sentiment is a contrary indicator: Typically, the best time to buy is when the public is thoroughly disgusted with the stock market.

Sentiment is only a reliable signal at extremes: Most times, it's suicidal to stand against the herd on the Street. Although sentiment has been getting more bullish since March, current readings are far from the fervent optimism that would trigger a "sell" signal.

If you're going to tiptoe into the market, play it safe: These are still perilous times, and you don't want to bet on highly specialized, volatile funds. Start by looking for broadly diversified, large-company stock funds. Should the economy slump again, large-cap stocks should hold up better than small-company funds.

Two words: index funds.

As you all know, I'm continuing to invest in the market and am putting as much as possible into it (I'd put more in, but I've been saving for a substantial house downpayment, so I have a good amount going that direction too.) I'm fairly sure that the investments I'm making now will have a very handsome return over the next decade or so (and if not, I have more time -- I won't need these funds for 20-30 years.)

By the way, I don't see the housing meltdown as a problem. For me, it's a buying opportunity! ;-)

Comments

[Mark]

If you could only pick one index fund right now, and you were debating between the Vangaurd Total Stock and the Vanguard International Index funds, which one would you pick first?

[FMF]

Mark --

Why can you only pick one?

[Mark]

I currently have a financial advisor who works for a company that offers load funds. I want to try and start investing on my own and know that index funds are the way to go because of their low expenses. I eventually want to buy both of these funds but because of the minimum investment I can only do one at the present time.

[FMF]

Mark --

1. Don't buy load funds.

2. Some companies offer low initial investments if you invest automatically.

3. Do you have a 401k? If so, there should be no minimums there.

4. If I had to make a choice, I'd start with the U.S. companies first (especially now when prices are relatively low) and add international as soon as possible. (FYI, many US companies are multinational, so you get some exposure to overseas markets through them.)

[jeffs]

are you trying to do any allocation between the two funds our are you going straight 50/50. I found the vanguard lifestrategy growth fund (vasgx) to be a nice choice for my 1 year old son. 85% bonds (15% of which are international), 10% bonds and 5% cash. This was my 1 fund solution.

or vs our sorry, read your post jeff

wow did i mess up that post so let's just try again

are you trying to do any allocation between the two funds or are you going straight 50/50. I found the vanguard lifestrategy growth fund (vasgx) to be a nice choice for my 1 year old son. 85% stocks (15% of which are international), 10% bonds and 5% cash. This was my 1 fund solution.

next time i'll use the preview button!!!

[Mark]

I have a 401k which I invest 5% of my salary into (there's no match on the 401k, but they do make a contribution of 3% of my salary), however the choices available in the 401k aren't all that great. I've diversified myself among the choices available.

I also have a traditoinal IRA I rolled over from a previous job, and a Roth IRA.

The reason I debate over the two is because I know international stocks have done really well and will continue to do so over the years, but it also appears to be a great buying opportunity for the US Index as well. I probably will start off with the US Index.

[That One Caveman]

I would love to invest in Vanguard's index funds, but I don't have $3,000 available for investment right now. It's a shame because I want to get into the game, but I only have half of the buy-in. Are there other recommended index funds that don't have as high of a minimum?

[rwh]

T-Rowe Price has funds for $1000, and they'll take less than that if you agree to a minimum of $50/month taken electronically from checking until you get up to a $1000 fund balance. I just started their Total US Market Index fund for my daughter in a Roth IRA. She had less than $1k in income for 2007 so it was one of my few choices. I don't think the option is available outside of an IRA.

I'll advise her to keep the money at T-Rowe Price until she can make the 3k minimum at Vanguard. Then we'll switch to their Total Stock Market Index-US because the fees are lower at Vanguard (0.2% compared to 0.4% at Price).

Also, Vanguard STAR fund is available in an IRA for $1k minimum. It's a balanced fund.

[Kevin]

I also have my wife's money invested at T. Rowe Price. We did the $50 a month at first and increased as we could. Now that we're up over Vanguard's minimum in her account, we're going to transfer it over so everything is under one roof - we also have savings there with the Prime Money Market and my Roth is in Vanguard Index funds.

[aaktx]

I am a big fan of index funds in my 401K. I would argue that the VTI ETF(total stock market ETF) or VEU(international index ETF) is way to go in a taxable account; especially if a lump sum is invested. Use a discount broker and over time it may save money.

[Dave]

No offense, but this is one of the dumbest articles about the market I've read in a while. (Not your blog post but the article itself.) The biggest problem is that it's about 3 months two late. I don't know if Waggoner bothered to notice, but the market has been in a bear market rally since March! Until last week, investor sentiment has NOT been low and volatility has NOT been high (check the VIX index). It's starting to creep back toward what Waggoner is talking about as the bear market rally has faded, but much of his data appears to be from March, even though the article wasn't posted until late May. The other problem is that from a purely "timing the market" point of view, it looks like the market will be headed sharply downward over the next 4-6 weeks, so his article could not have come at a worse time for the "average" investor who thinks he or she should be rushing back into the market.