Now Is the Safest Time to Buy Stocks

Unless you’ve been living under a rock — check that, several rocks — you know what I’m about to tell you: Stock markets worldwide are down substantially this year. Here’s a representative update on the carnage:

While you’ll hear some talking heads on TV tell you this is a “once-in-a-lifetime” event, the fact of the matter is that these returns resemble what we saw year-to-date around this time in 2002 … just six years ago. Take a look:

Despite all the talk of financial calamity, most of us are still ahead of where we were six years ago. That’s not good, of course, but it’s also not the end of the world. Incidentally, if you’ve owned Brazil and China for the long term, you’ve improved your lot in life quite a bit.

What this means for you
There are two lessons to take from these tables. The first is that the safest time to buy stocks is not when the market is optimistic, but when it’s extraordinarily pessimistic. That was the case in December 2002, and if you bought then, you got in at such low valuations that the current crisis — a crisis that has cost trillions in wealth, taken down several major investment banks, and garnered extra-large headlines around the world — has merely returned you to your original cost basis.

The second lesson is that it’s important to diversify globally, because different countries are driven by different forces and will offer different returns — and different valuations — over time.

That’s not to say we’re taking these events lightly here at The Motley Fool. Instead, our goal is to help more individual investors understand that this is not the time to run terrified into cash, but actually an attractive time to put money to work around the world.

The key, however, is to know your facts.

Source: Fool.com