Is now the time to jump with both feet into the stock market?

Better to *jump* in with both feet than to *dive* in head first.

I would advise against going directly into the stock market. The late Malcolm Forbes used to tell this joke about guy, fresh out of college, who was hired as a stockbroker, and on the first day of work, there was a company outing at the yacht club. The head of the company walked him around, saying, "Now that is my yacht, and that is the yacht belonging to the head of research, and that yacht belongs to Jim the broker, and that yacht belongs to Joe the broker" etc., and after about ten minutes of this, he said, "You seem to have a puzzled look on your face. What are you thinking about?"

"I'm just wondering," the new broker said, "where are all the yachts of the *customers*"?

Statistically speaking, it's almost impossible to outguess the market. There are lots of mutual funds with professional stock pickers, people who make picking stocks their life's work, and you'd think they'd eventually get good at it, but it's pretty rare for stock pickers to do even as well as a monkey throwing darts at the stock market listings in the newspaper.

So they've developed index funds, funds where the underlying stocks are picked automatically by computer.

Warren Buffet stated in a February 1996 investment letter to his Berkshire Hathaway shareholders: â€œâ€¦the best way to own common stocks is through index fundsâ€¦.â€ In his 1997 letter he writes: â€œLet me add a few thoughts about your own investments. Most investors, both institutional and individual, will find that the best way to own common stocks is through an index fund that charges minimal fees. Those following this path are sure to beat the net results (after fees and expenses) delivered by the great majority of investment professionals.â€ In February 2003 he gave this advice to investors in his shareholder letter: â€œâ€¦those index funds that are very low cost (such as Vanguardâ€™s) are investor friendly by definition and are the best selection for most of those who wish to own equities. And, his February 2004 letter states: â€œOver the [past] 35 years, American business has delivered terrific results. It should therefore have been easy for investors to earn juicy returns: All they had to do was piggyback corporate America in a diversified, low-expense way. An index fund that they never touched would have done the job. Instead many investors have had experiences ranging from mediocre to disastrous.â€

So I'd recommend Vanguard, the papa of all index fund companies to you. They service customers well, and their management fees are very minimal, which means more money goes to you.

I'd recommend value funds. Buying a company in bankruptcy is risky. You shouldn't throw your life savings at a company that could be liquidated tomorrow, with nothing going to the shareholders. But value stocks are incredibly cheap. Consequently, buying a market basket of 1000 or 1500 stocks is one of the best moves on the street. Some of the companies will go pfffft. Most of them will recover modestly. A few of them will skyrocket. And because you're buying stocks that are incredibly cheap, your overall return reliably beats the market as a whole.

Small companies are bargains, too. The big mutual funds figure they can't bother with small companies, because it takes as much work to follow a little company, in which they can invest only a little, as to follow a big company, in which they can invest a lot. Because they refuse to buy the stocks of small companies, these are also cheap stocks.

But most of the job growth, which is to say economic growth, in America comes from small business. Small businesses take risks and sometimes they win big. Big businesses mostly buy small businesses, and invest in them, automating their production and getting rid of labor. There's more profit in developing the hula hoop, than in wringing the last few pennies out of producing it.

So the best investment tends to be small-cap value index funds.

If you're going to jump in with both feet, you still oughta investigate before you invest.