You’re best off making a long-term asset allocation plan based on your time line and your appetite for risk and sticking to it – no matter what magazine you pick up. The other key element to consider? fees. Look for low-cost investing options.

Kristen
@filife

Basically, the answer, as Nickel kind of hints at, is all of the above. The important thing to realize about the stock market (or any market) — that was not so common knowledge only a year ago — is that it is not guaranteed to outperform anything, or to reach a set objective.

The key, as with any investment, is to buy it cheap. Some stocks are cheap right now, and so are some bonds — the same way it has been since both of those markets came into existence.

I have a feeling for most of the readers here, given a notable fiscally conservative bent, they would be much happier being heavy in the bond market than paying the risk premium for stocks. Don’t let anyone tell you that there is something wrong with that.

BuffetFan- you still didn’t say what to do with the money in case if:
1. One already has a well paying job.
2. If one loves one’s job than this is the same as 1. If not then one cannot make money with one’s passion either for the lack of talent or lack of jobs. In this case 2. is really a hobby. Hobbies can bring money or not. If not – then it is not investment, it is entertainment. Important for quality of life but not as part of an investment strategy.
3. One doesn’t have any debts. Really, it annoys me how posters assume that everyone has debts. Besides, arbitrage has been around for years. Not paying off a low fixed interest debt can be part of an investment strategy. I happen to have bought some AAA municipal bonds paying tax free 5.5% a month ago. Now, my mortgage happens to be paid off, but paying off a mortgage where you pay tax deductible (if it is deductible for you) 4.75% while investing in AAA municipal bonds at tax free 5.5% seems like a valid investment strategy. Nope, no such rates now, but this was just an example of how under certain circumstances it may make sense not to pay the debt.
4. OK what to do with the rest of the money? You say putting some money into stocks and bonds. Great. Your strategy doesn’t say what to do with the rest of the money that are left after 1,2,3 and 4. CDs? Great and safe if you expect deflation, but not if you expect inflation. Ditto about government bonds except for TIPs. TIPS? Maybe – if you expect inflation and trust government numbers. But neither strategy is risk free.

Virtually every investment strategy has risks. The higher the risk the higher possible return. One needs to decide based on one’s risk tolerance, view of the economy and individual circumstances not based on what one reads or hears. Incidentally sometimes even what is generally considered a bad idea can work out for the best. E.g. I keep way too much money in my employer stock, but since my employer stock is higher today ($115) than it was at the end of 2007 ($109), I sure as hell happy that I haven’t moved money into index funds… . Yes, I plan to sell some, I agree it is a bad idea to keep too many eggs in one basket (not all I have but maybe 20%).

BTW – my losses in 401K were around 20%, and I have already got some of the money back. Not nice, but way better than some people. A friend of mine’s losses in 401K are 0 because he moved money into stable value on time. If people lost too much money, maybe they should’ve kept less money in stocks within 401k? Really, there is stable value in 401K, and some 401K plans have government inflation-protected bonds as well. Why do people equate 401K with stocks?

1. Invest in a great paying job.
2. Invest in a job that you love.
3. Invest in paying of all debts, the rate of return is always without risk or lost and the investment expense is 0% (try to beat this with your index funds). Life without car or housing payment is very low stress and full of options. Remember what it was like when first left high school?
4. Gamble some of your money in stock and bonds. The expense is higher here and so is the risk. People selling you these products are more likely to make money then you. They also know when to sell and leave you with your losses. Do you know who took all the money in the recent stock market crash? Not the working people contributing to their 401k.

Think about number 4 for a little while.

How much do they recommend CD’s, government bonds, currencies, commodities? Not so much. So they advocate diversification–”well, given the strength of the market and the fundamentals driving it, you should be 80% in stocks, 20% in bonds” or “the economy looks shaky and there’s no telling where things are going, so a 70% stock/30 bond mix should bring you out on top”.

Where do these experts dissappear to when the market is tanking, and do the ever recommend getting out of stocks completely, demonstrating some level of objectivity? Never.

Read them for entertainment, but take the advice with a large grain of salt. They aren’t objective.

We need to figure out investing for ourselves. We need to start a movement in the Personal Finance Blogosphere where we try to figure out what really works and report our findings to our reader. Out first commandment has to be: Marketing Considerations Will Not Influence Our Reports.

There’s no other way. So long as we permit marketing to be the dominant force in what we hear about investing, we are all going to continue to destroy ourselves financially.

Rob

Good advice people, turn on your listening devices.

Your exactly right. Ignore anything that says “do this”. Look for information that explains the features and risks of any particular asset class. You then need to apply this to your own situation (age, investment period, attitude to risk etc.)

jk, of course. I wasn’t the first one to say it, nor will I be the last. It’s good advice though, methinks.