From Michael Portuesi: “I’ve read at various times about the prudence and rewards of diversified investments, asset allocation, and dollar-cost averaging.

“Now that I have a small boatload of cash – mostly as a result of sales of my previous employer’s stock (I’m a software engineer, who worked for a company that at one time was going places) – I’m thinking that I should purchase a mixture of stock and bond funds, plus keep some of the cash around. The money would remain invested for five years or more.

“But given my uncertainty regarding the near-term future of the stock market, would it be wise to put a lump-sum there at the outset, if one expects the market to go down over the next year or so? I understand dollar-cost averaging, and I would have no hesitation to invest regularly through high and low, but it seems odd to put a large amount of money into the market when you believe it to be near a local peak.

“What are the considerations here? Assuming for a moment my crystal ball is better tuned than most, why would I invest now, rather than sit out for six months or so? If I’m investing for the long term, is any time really a good time?”

A.T.: Good question! Assuming your crystal ball IS better tuned than most, you’re right: wait. But that’s an awfully big assumption, because even the brightest minds on Wall Street tend not to have tunable crystal balls. That said, I admit I’d have trouble buying the Dow at 9000, too. The stocks I tend to buy at times like these (so far, with poor results compared with the Dow) are out of the limelight, overlooked, that seem to me to represent decent value.

Like most investment questions, yours is truly answerable only in hindsight. You’re wise to recognize that the market is no bargain here, and to keep some of your money safe and relatively liquid. (Try Treasury Direct, especially if you live in a high-tax state, for your short- to intermediate-term bonds; no need for a mutual fund.) But you’re always – yes, always – wise to embark on and stick to a program of regular monthly investments in the stock market … so long as it’s truly long-term money you’re investing (five years is really only intermediate term). So if you have nothing in the market now, I would certainly start.

But I wouldn’t dump every cent into the U.S. market all at once at today’s prices. Indeed, let me go way out on a limb and suggest that, after suitable research, you put a little in Russian stocks (5% of your stake?), via a fund, and a little in Japanese stocks (10%?), either directly (many are traded here) or via a fund. In ten years, you will either hate me for this suggestion or else, if it goes really well, forget it was mine.

Good luck!



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