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Publication: Investor's Notebook
Waiting to Buy

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       Investor's Insight - January 30, 2007           
          "A Digest of Investment Opinion From the 
             World's Leading Financial Advisers"


by Scott Burns

Q: I'm a 64-year-old grandma who messed up bad. My money 
was in the Vanguard 500 index fund, but in August every-
thing was going south. So I moved my money to a money 
market account. Now stocks are doing well again, and I 
have no idea how to get back into the Vanguard 500 with-
out losing a lot of money.

Also, in 2000 I sold my house and invested quite a bit 
in stocks like Cisco Systems, CMGI, Motorola, Oracle, 
etc. I'm still holding them, thinking that is the only 
way to get my money back. I'm still $35,000 in the hole. 
Any suggestions? -- B.H., Austin, Texas


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A: One of the most painful exercises an investor can do 
is to compare the performance of an investment that has 
been sold with the investment that replaced it. Often, 
the sold investment will do better.

The basic idea of index investing is that you can't 
guess which stocks to buy or whether the market is 
going up or down. You can only be fairly certain that 
you are likely to get a good return over a long period 
of time.

I think you need to think about the decisions you made 
differently. First, you did not lose money when you 
sold your S&P 500 fund. You lost an opportunity to 
make MORE money than you made in the money market fund. 
Losing an opportunity isn't the same as losing money.

My suggestion: Buy the index fund again and pretend that 
you are now living on a desert island, far removed from 
our reliable sources of worry.

One of the best reasons to own index funds is that you 
don't have to worry about the fate of individual com-
panies. The value of your stocks is their price today. 
Not what you paid for them. Not what you hope they will 
be worth tomorrow. Just their price today.  

Every day we choose the horse we're going to ride. If 
you choose individual horses, you'll have a lot of ex-
citing races and you'll lose a lot. If you own the track, 
you'll enjoy all the races. And you have a really good 
chance of making some money.

Q: I have a fair amount of cash waiting for a market 
drop. I'm fascinated with the Couch Potato portfolio, 
but should I continue to wait for a drop, or would you 
advise investing in all, or some, of the funds now?

I'm comfortably retired. My husband has a substantial 
portfolio, but I have a relatively small one that I en-
joy working with. I do not consider it "play money," by 
the way. Is the Couch Potato suitable as is for invest-
ors in a higher income bracket? -- K.M., Franklin, Tenn.

A: Lots of people are waiting for the market to drop. 
Unfortunately, waiting for the opportune time doesn't 
work for most people. When the market does drop, they 
will worry that it will go lower. So they'll wait some
more. Then the market will pop upward. They won't be-
lieve the rise is real. Later, they will kick them-
selves for not having invested at the bottom. So they 
will wait for prices to drop again.


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Waiting for a big market low is a good way to avoid 
"pulling the trigger" and making a commitment.

That's why I think we need to select an asset allocation 
and invest. If it makes you feel better to invest over a 
period of six to 12 months, then invest over a period of 
six to 12 months. 

Whatever you do, the only thing certain is that you will 
worry. You will have misgivings regardless of what happens. 
One of the reasons equity returns are higher than CD re-
turns, long term, is this uncertainty.

The basic Couch Potato portfolio is suitable for investors 
who want to have minimal expenses and returns that are 
superior to most of the managed competition. If domestic 
equities return 10 percent to 11 percent (dividends and 
price appreciation) and domestic fixed-income securities 
return about 5 percent, your long-term return should be 
close to 8 percent a year.

Year by year, however, there is a good chance that you 
will lose money in some years and make a bundle in others.

You can discuss this issue or any other topic in the new 
Investor's Insight forum. Check it out here...

Investor's Insight Forum

(Investor's Insight reflects the opinions of experts. It does 
not recommend any specific investments, and no endorsement is 
implied or should be inferred. For more information, contact 
the individual firms cited).



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