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Smart Advice for the HuffPost Investor: Is Now the Time to Sit on the Sidelines?

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Question: Isn't this the time for you to tell would be investors that it is not an investors market and they need to keep their money on the sidelines?

Answer: It is never the time to give that advice. Individuals who can stay in the market for a minimum of 4 ½ years should always be in the market. The key is to be sure you have the right asset allocation.

If you can't stay the course for that long you should invest in FDIC insured CDs, money market accounts or Treasury Bills.

Investors with a longer time horizon run a meaningful risk when they jump in and out of the markets. The markets move in a random manner. Trying to predict the highs and lows is risky business. All we really know is that, over time, the world's markets increase in value.

One study looked at gains and losses in the markets over a 10 year period, consisting of 2516 trading days. Over this time period, only 20 trading days made up 100% of the returns! I don't have the ability to pick those 20 days. No else does either.

Rather than telling investors to stay out of the market, I would advise them to determine their asset allocation. They can do this by taking a free and interactive asset allocation questionnaire at www.smartestinvestmentbook.com. They should then invest in a globally diversified portfolio of low cost index funds, readily available from well-known fund families like Vanguard and Fidelity.

In relationships, absence sometimes makes the heart grow fonder.

The reverse is true for investors. You never want to be absent.

Question: Do you see ETFs as advantageous as index funds?


Answer
: ETFs are becoming very competitive with index funds. They often have lower expense ratios and may even be more tax efficient.

Some problems with ETFs include the cost of the bid-ask spread and the necessity of having a brokerage account, requiring the payment of commissions when you buy or sell them.

However, for investors living in areas outside the United States where low cost index funds are not readily available, I view ETFs as a viable alternative.

One alternative for these investors is an ETF that tracks the performance of the world's markets. The iShares MSCI ACWI Index Fund (NASDAQ: ACWI) tracks an index of 2,884 different stocks from developed and emerging markets in every investable market in the world.


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