The second best time to invest in stocks might be today

Jul 12, 2011

It's been an up and down year for the stock market. Every time the market rises 5 or 6 percent, it seems to slide back by the same amount. Should you invest, or keep your money on the sidelines?

On this week's Money Matters, financial commentator Greg Heberlein tells KPLU's Dave Meyer that now is not the time to get discouraged.

Greg's analysis:

Since the Dow Jones Industrial Average peaked at 14,000 in 2008, millions of participants have abandoned the stock market. As they've learned, selling on the way down produces nothing but regret when the market springs back to life.

Over 15 months, the Dow lost more than half of its value. It bottomed in March of 2009 just above 6,500. Those able to invest at that point have seen broadly based portfolios double in just two years.

For those who haven’t given up on stocks forever, trying to figure out when to get back in is frightening. Investors continuously try to calculate the best time to return to the stock market. A historical perspective may help.

The only market disaster comparable to the current one in the past century was the Great Depression. The Dow Jones average ended a three-year collapse in 1932 at 41. It was hard to find anyone with two cents, let alone find anyone to invest. But those who did experienced miraculous results. Five years later, the Dow had risen four-fold, to almost 200.

At a market bottom, when we should be buying stock, investors try to sell their holdings at any price. Traders are stuck with huge inventories they can’t find a buyer for.

Returning to today’s halcyon stock-market environment, we see a market that has doubled from its low in 2008. Questions about debt, unemployment, war and the solvency of foreign nations swirl around the market.  Yet stock indexes continue to climb. Not all at once, but week by week, month by month. It is said stocks climb a wall of worry, and they clearly are doing that.

Yet for many the decision to put investable cash in the stock market is a question without an answer. Many investors are frozen by indecision.

That’s where the 1930s come into play. When times were the darkest, investing was never better. But even if you had invested two years later, when the market had already doubled, you would have double your stake in just three years. Any time in that five-year period was a good time for long-term investors.

To revise a market adage, the best time to invest was two years ago. The second best time is today.