The Dow recently hit an all-time high. The S&P may be next. The Wall Street pundits are saying the markets are going higher. Stocks will go up. Interest rates will go down, based on last week’s inflation report, meaning that bond prices will go higher. But wait, Alan Greenspan says there’s a 1/3 chance of a recession before the end of the year (that’s within the next seven months, folks). A recession certainly won’t be good for stocks. 

 

What’s an investor to do? Invest for the long term. How? By finding good professional managers, i.e., mutual fund mangers, and sticking with them.  These men and women come to work every day and think about nothing except how to invest your money. (Okay, they may also think about where they’re going for lunch and their kids soccer game, but all of us think about these things at work, don’t we?)

 

If a doctor shouldn’t operate on his own family and a lawyer shouldn’t represent himself, should an investor manage his or her own money?  I propose a simple test. Compare the five year performance of your portfolio to the performance of top ranked mutual funds with similar objectives (you can find these funds at MUTUALdecision).  Compare your stock holdings to one or more similar equity funds and your bonds to a comparable bond fund. Did you outperform your benchmarks? (If so, please send me a list of your holdings, so I can buy them.)

 

Now for the bonus round question: compare the annual fluctuation in the value of your holdings to the fluctuation in price of your mutual fund sample. Which is greater? This is a rudimentary gauge of risk.  If the mutual funds were less volatile, that’s another argument in their favor.

 

So, unless you have the time, discipline, and track record, keep a little money aside for the next Google, but invest the rest in good mutual funds.  Investing your money is too serious a matter to be anything but a full-time job.