Personal Finance: Crash or no crash, leap on board

ONE OF the questions often asked on the Motley Fool's message boards is: "I'd like to invest in the share market, but I keep reading that it is too high. Should I wait until after the crash?"

This question was particularly pertinent this week. On Wednesday the FT-SE 100 index fell 184 points, or 3 per cent in a day. These headline numbers scare not only the novice investor but also the experienced traders.

Greed and panic drive the market both up and down, and both these emotions were evident on Wednesday. It is on occasions like this that the individual investor has an advantage over the City experts. We don't sit there staring at computer screens, transfixed as the index falls, not knowing whether to buy, sell or hold.

Unlike the Wise who work in the City, we Fools have time on our side. A Fool's investment perspective should be measured in years, and plenty of them. We suggest you shouldn't invest any money in the share market that you will need within five years. The longer you push that investing time-scale out, the more time you have got for the miracle of compound interest to take effect. Remember - time is the friend of the long-term investor.

Those who wait for the crash are likely to miss the recovery as well, in the same way that some people have missed one of the greatest bull markets in the century waiting for a crash. The best way to enjoy the long-term benefits of the share market is to remain invested throughout.

Share of the week

During Wednesday's mini-bloodbath, the retail group Dixons released its interim results. Unlike other notable high street chains (for instance, Marks & Spencer), the owner of PC World, Currys and The Link saw like- for-like sales increase by 3 per cent over Christmas. Of more interest to investors was the stunning growth of its internet business, Freeserve. Launched just 16 weeks ago, the country's first free-access internet service provider (ISP) has attracted 900,000 registered accounts, of which more than 700,000 are active. Although a direct comparison cannot be made, AOL, which has been established in the UK for several years, says it has 550,000 members.

With the valuation of many of the US internet shares heading into the stratosphere, investors might just be wondering whether Dixons may be the UK equivalent.

You may be wondering how Freeserve makes its money. Most of its income will come via its share of telephone call charges, which it splits with Energis, the telecoms company spun off from National Grid. In the future, if the US models are anything to go by, Freeserve will hope to be able to generate significant revenue by charging premium rates to advertisers who will be keen to get a placement on its popular home page. Finally, its somewhat infamous helpline charges callers pounds 1 per minute.

Before diving into Dixons shares, investors should be reminded that Freeserve is a tiny, tiny part of the Dixons empire. Sales and profits from its traditional high street stores will far outweigh those of the ISP business. Also, having seen how quickly and relatively easily Dixons has been able to sign up customers, competitors will no doubt be circling.

But in the internet world, being the first player counts for a lot and Dixons, with its ready-made distribution system (pick up a Freeserve disk in stores) has the jump on the opposition.

Visit Motley Fool at www.fool.co.uk

Name that company

The first five correct answers out of the hat each week win a super de luxe, black "FOOL" baseball cap.

This transport company has been one of the real high-flyers of the stock market. It has seen its shares grow at a compounded rate of 51 per cent per annum over the past three years. Now a diversified bus, train, road, and airport operator it has a reputation for excellent deal-making, the latest being a partnership with Virgin Rail. It has also been known to have the odd union battle and their rail service has been run a touch behind schedule at times. What is the name of this company and who is its chairman? E-mail your answer to UKColumn@fool.com or send it by post to Motley Fool Trivia, The Independent on Sunday, 1 Canada Square, Canary Wharf, E14 5DL.

Last week's answer: Sir Clive Thompson, chief executive of Rentokil Initial.

ask the fool

Stockbroking accounts

Q: What is the difference between the various stockbroking accounts? - AH, London

A: Broadly, there are three types. First are execution-only stockbrokers, who will do nothing more than buy and sell shares for you. These are the cheapest. Then there are advisory accounts in which a broker will make recommendations as to what you may consider buying or selling. Finally, a discretionary broker will manage your entire portfolio for you.

We advocate that individuals learn to manage their own money, so we prefer the first kind of broker. In the US, there has been a large reduction in the fees that discount brokers charge and an explosion in the number of these brokers which allow trading on the internet. Look for something similar to happen here soon.

my dimmest investment

Send us either your dimmest or smartest investment story in 100 words or less and if we publish it, you'll get a free copy of the 'Motley Fool UK Investment Guide'. E-mail to UKColumn@fool.com or snail mail to Motley Fool Trivia, Independent On Sunday, 1 Canada Square, Canary Wharf, E14 5DL.

Being a football fan, I was easily swayed into buying into a football fund and blithely sent off pounds 5,000. The fund has consistently under-performed and the units now stand at 80 per cent of their original value. CB, East Sussex

The Fool responds: As a fan, you obviously know about football and it's a good idea to buy what you know. But just knowing about an area of business doesn't mean that any investment in that field is a good one.

Always look carefully at any unit or investment trust's past performance.