Candid Answers I Wish I Could Give

12/19/2008 05:12 am ET | Updated May 25, 2011

I get asked a lot of investing questions. I am conflicted in answering them. I want to be helpful but I also want to be tactful.

Here are some of the most common questions I am asked. They are followed by the answers I wish I could give.

Q. Have the markets bottomed out?

A. I don't have a clue. If I did, I could rake in a fortune.

Q. (From a 30 year-old). I am worried about the declining value of my 401(k). What should I do?

A. You should pay no attention to the value of your 401(k) until 2037, when you will be entitled to take it out without penalty.

Q. What do you think of the investment choices in my 401(k) plan?

A. I think they are indefensible garbage. I also believe that limiting your investments to this array of high expense ratio, actively managed funds should be illegal.

Q. Is this a buying opportunity for stocks?

A. Yes. And for bonds. It is always the right time to be properly invested.

Q. Is it "different" this time?

A. No. The markets will recover. I don't know when, but they will.

Q. Is this a good time to buy commodities?

A. Yes, and it is also a good time to buy every other asset class.

Q. Is this a good time to buy Emerging Markets?

A. Yes, and it is also a good time to buy every other sector of the world's economic markets.

Q. Should I buy individual bonds or a bond fund?

A. You should buy a low cost bond index fund.

Q. Why?

A. Because you can't get enough diversification on your own. More significantly, your broker can rip you off in ways you will never figure out if you let him or her put together a bond portfolio for you.

Q. Why are you such a big fan of Vanguard?

A. Because they have the best selection of index funds with the lowest cost and you can avoid dealing with a broker.

Q. When should I use a broker?

A. Never.

Q. How do really sophisticated people invest?

A. They determine the asset allocation that is right for them and they buy funds managed by Dimensional Fund Advisors, available only through selected investment advisors. (Full disclosure: I recommend DFA funds to my clients).

Q. If DFA funds are so great, why aren't those people rich, like hedge fund managers?

A. The founder and Chief Executive of DFA, David Booth, just gave $300 million to the University of Chicago Business School. It will be renamed "The University of Chicago Booth School of Business."

Q. Why don't more people invest in index funds and DFA funds?

A. Because brokers and many advisors make more money selling them other products which make no investment sense.

Q. I have a claim against my broker. My lawyer tells me I have to submit it to mandatory arbitration, administered by FINRA. What are my chances of getting a meaningful recovery?

A. Slim and none. The process is a national disgrace and should be abolished.

Q. I get confused and depressed when I watch the financial media. How do I know who to believe?

A. The most reliable source of investment advice is long term historical data. It is also boring which is why you won't hear or read much about it. Most investors would be far better off if they ignored the financial media.

These answers are my honest opinion. I wish I could give them all the time.

The views set forth in this blog are the opinions of the author alone and may not represent the views of any firm or entity with whom he is affiliated. The data, information, and content on this blog are for information, education, and non-commercial purposes only. Returns from index funds do not represent the performance of any investment advisory firm. The information on this blog does not involve the rendering of personalized investment advice and is limited to the dissemination of opinions on investing. No reader should construe these opinions as an offer of advisory services. Readers who require investment advice should retain the services of a competent investment professional. The information on this blog is not an offer to buy or sell, or a solicitation of any offer to buy or sell any securities or class of securities mentioned herein.