by Archie M. Richards, Jr., CFP^®
February 9, 2004

Abigail writes, "I want to buy the index funds you've suggested, but I'm afraid of a market turndown. Pundits have called for a correction of 10 percent or more. Should I wait?"

No, Abigail. The market rises over a period of years because the people of the world work to generate wealth. Big governments impede the effort. But lately, governments have become less of a pain. This is a key reason why wealth will be created in great abundance in the next ten or twenty years. Get aboard.

I don't know of anyone who correctly predicts short-term market trends on a consistent basis. We're all flummoxed by short-term trends. The market is always a surprise.

In the long run, the market goes up. In the short run, none of us know what it will do. Therefore, the right time to buy stocks is when you get the money.

This is easier said than done. You might want to buy for the long term. But it's impossible to buy in the long term. We don't live in the long term. We live in the now. Our minds operate from second to second. We're continually buffeted by news and events, some good, some bad.

The news we learn from the media tends to be bad. The media doesn't have to be right, but it does have to be interesting. Most of us take more interest in bad news than good news. We like to learn about crime, controversy, disasters, losses, mistakes, and wrongdoing. Any newspaper that presented nothing but sweetness and light would go busted within a month.

When we want to invest, we're always confronted by bad news of some kind. We're afraid that just after stepping in to buy, prices will fall, making us feel like fools for not waiting.

The short-term uncertainties make investing a little like swimming. When we dip our toes in the water, it feels cold. This makes us nervous about jumping in, even though we know that before long the water will feel great.

Here's how you can remove some of the fear of investing: Assume that in the short term, you're going to be wrong. If you buy stocks, the prices will fall. If you don't buy, they'll go up. Assume you have no control over the short term, because in fact you don't. Whatever happens in the short term, it's not your fault.

Let's say you don't get in and prices rise. You feel foolish for having waited. Not wanting to be wrong twice, you say to yourself, "Oh to heck with it," and you get in at the higher level. Then the market falls, making you feel even more foolish than if you'd bought at the beginning.

Let's say you don't get in and prices fall. The declines themselves are bad news. The lower the prices go, the more pundits that predict further decline. After prices have gone down a lot and are about to start rising, almost all of the pundits predict declines.

Intangibles, like stocks and bonds, are altogether different from tangible goods you can lay your hands on in a department store. When the prices of tangible goods go down, most of us consider them more desirable. But with stocks and bonds, the lower prices go, the less people want them.

Down markets make it harder to commit to stocks. You wait and you wait. Finally, you buy when the coast seems clear. But by then, the prices are higher than if you'd done your buying in the first place.

The coast is never clear. Just get in.

Reduce the fear in buying stocks. Assume that no matter when you time your purchases, the market will make you wrong in the short term. Then, get in. Just do it. Gain the benefit of wealth being created all over the world.

In the long run, the water's fine.