Is there a perfect time to take the stock market plunge?
It is always tempting to delay casting money into the stock market. Once you have switched from cash into equities, you are shifting from a world of cosy mediocrity into a maelstrom of risk and reward.
The moment you press the "Buy" button on your computer, your money is at the mercy of a host of unknown unknowns, from top down threats such as a global meltdown or asset bubble to bottom-up dangers such as a departing chief executive or an unexpected profits warning.
You can't do much to control these risks either. No wonder even the boldest investors sometimes get cold feet.
Let's dance
Too many people stand on the edge of the stock market like a nervous debutant at her first ball, waiting for the perfect partner or the perfect moment to make her entrance.
Right now, many investors feel the same way. I know from our users' comments that plenty of you believe the equity rally has been built on unstable foundations, and could suddenly collapse. That's hardly surprising, we aren't exactly short of doomsday scenarios right now.
But anybody who shunned the dance floor in the last six months will have been confused and frustrated by the continuing health of global stock markets (not to mention the measly return on their savings).
There comes a time when you have to ask yourself this question: What are you waiting for?
The dangers of playing safe
If you are forever waiting for the perfect moment to invest, there are three things that can go wrong.
It might never happen. You're convinced a crash is coming, but it doesn't. Markets keep rising, shares keep getting more expensive, you keep missing out on all that juicy growth. Oops.
It does happen, but at the wrong time. Your nerve cracks, and you throw money into the stock market (at a higher price) before it rises even further. And that's when the long-awaited correction finally comes. Bah.
The market corrects, but only a bit. Is this the correction you were waiting for? Is now the time to invest? Or do markets have further to fall? Ouch.
Waiting eats wealth
There is another problem with being too fussy about parting with your money: it ultimately ends up eating your wealth.
If you're going to invest in the market, the sooner you start the better. If you saved £200 a month from age 25, you would have £300,000 by age 65, assuming a return of 5% a year. But if you waited until age 35, just 10 years later, your total pot would be worth just over half as much, £167,000 in fact.
Thanks to compound growth, the early years of saving are much more important, because your money has that much longer to roll up. So the earlier you get started, the better you are likely to do.
Now you could argue that's an extreme example. Even the gloomiest Fool out there isn't going to wait 10 years just to see how markets turn out before parting with their money. But it does illustrate the dangers of delay.
There was money to be made over the last decade
Aha, you say. Anybody who stayed out of the stock market over the last 10 years won't have lost any money, given that the FTSE 100 is well below its 31 December 1999 high of nearly 7,000.
Good point. But if you expect stock markets to be perfect, meaning you never ever suffer losses along the way, then you're reading the wrong website.
And investing over the past decade would only have been disastrous if you ploughed all your money in on the eve of the Millennium, after which the only way was down.
Very few people did that, thankfully. Depending on their age, most will have been tossing money in during the 80s, 90s and after the dot.com bust-up, and made a profit. I know I have. The average return across all my funds and shares is around 70%, and I only started a dozen years ago, and became really keen in the last three or four years.
The big drip
If you're nervous about stock markets right now, I wouldn't advise shunning them altogether. You may well be wrong. But you don't have to take a punt that you don't feel comfortable with either.
Just slip a bit of money in now and then, so you don't take too much of a hammering if markets continue to rise. But you can still keep your major firepower in reserve, just in case you're right about that correction.
So what are you waiting for?
Why are you waiting?
There are always plenty of reasons to put off investing in stocks and shares. You think markets are over-priced, you foresee a second banking collapse, a eurozone meltdown, a series of sovereign debt defaults, a Chinese bubble, Japanese debt crisis, spiralling inflation... the list is endless.
But the list of worries is always endless. If you keep waiting until conditions are just right, you will never invest, because they never will be just right.
For example, we now know March 2009 was a great time to invest. But the list of worries at that point in time was arguably longer than it has ever been.
So what are you really waiting for?
More from Harvey Jones:
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