A lot of people have sent emails asking what they should do in this market. I can't see the future any better than anyone else, but I'll take a chance and offer this "generic" advice. Bud
Generic Investment Advice:
For more than 30 years I have followed a general allocation rule to keep my fixed income allocation between an upper limit of my age as a % and a lower limit of 10% less. So at 75, my target range for fixed income investments is between 65% and 75%. Only when fixed income investments get outside of these limits do I rebalance, and I do this only about once a year if necessary. (The Business Week article about my views last week mixed up the formula bit unless you read the sentences very carefully.)
In Getting Started in a Financially Secure Retirement (Wiley, 2007), I show that using limits instead of an absolute allocation formula is more effective at buying when stocks are low and selling when they are high.
Right now, I am not buying equities to bring my allocation into balance. For the first time I'm violating my own rules. I know that's market timing, and I'm opposed to market timing, but if you read my articles in the Economics section of Helpful Articles on www.analyzenow.com, or any of my press in the WSJ, Bankrate.com, Business Week, Newsweek, Kiplinger's, etc., you'll see why. In short, debts are just far too high.
My current advice to those who were within my allocation limits at the start of 2008 is to delay rebalancing. That would be the correct action either if the market rebounds to prior levels or if it gets worse. As far as new investments from savings from wages, I'd follow my allocation rules but lean to the higher limit of fixed income investments.
As you know, when you buy fixed income investments you are buying debt, and that's not a good thing to do if anticipating hyper inflation as I do. I also expect that the inflation will be preceded by the equivalent of a depression. So sound debt investments are good for the depression part of that scenario. But you can get some debt that's inflation protected. I saw the current situation developing over ten years ago, so I've acquired much more of inflation protected debt and on better terms than you can now. Interest rates were higher and you could buy a decent amount of I Bonds with better terms. One of my fixed-income components includes immediate annuities with inflation adjusted payments, but the underwriter turns out to be AIG. Maybe that's all right now that it's owned by the government. Now, I'm just getting shorter term instruments basically to preserve capital. My tax situation is such that TIPS in non qualified accounts aren't that attractive to me, but I'm thinking of converting part of my 401(k) into an IRA where I can buy TIPS (not a TIPS fund).
With rare exceptions, I don't buy stocks. I buy low-cost, tax-managed, stock index funds. Mirriam likes to speculate with stocks because some of her friends do. Fortunately I was able to get her to sell them at opportune times. That's not skill. It's just plain luck. One very wealthy man was asked how he got so rich. He said he always sold too early. When inflation starts to rear its ugly head, I'll start adding stock index funds again because that can be good inflation protection. REITs will also be attractive again.
I try never to buy a bond fund. I invest in ladders of individual issues and hold them to maturity. I'm a little scared of municipals failing right now, so I've got quite a bit of cash from maturing muni bonds now in muni money markets waiting for something I like.
I had an expensive financial advisor that Boeing provided who got me into some good stuff but also a lot of real estate partnerships. All I did was verify the old adage that a partnership is formed when two people get together, one who has all of the money and the other who has all of the knowledge. When the partnership liquidates, their positions are reversed.
I've never been financially sophisticated enough to get into options and hedge funds.
And so ends my epistle on generic advice. You can use it in the future to show how wrong I was.