What Average Investors Should Do In Market Melt Downs

Setting aside whether dollar cost averaging into a low cost index mutual fund is a good or bad strategy, the author falls prey to a common investing fallacy. It is most evident in this sentence, "Over the long haul, you won’t lose."

Experienced investors will immediately recognize that there is always some probability you will lose money regardless of the perceived safety of the investment. An investment provides return in exchange for risk -- there is always risk -- understanding this fundamental truth about investing is the the most important thing an average investor can do regardless of what the market is doing.

While the proposed strategy will provide a rate of return slightly below the broad market over long time horizons it's no sure thing. This observation is especially poignant on a day when the Tokyo market index is at a 28 year low.

http://www.cnbc.com/id/47668274

Funny that this and this: http://news.ycombinator.com/item?id=4062134 are front page.

Out of the fortune 500, only 320 were there five years ago.

If you invest in the broad market with silly things like gross revenue, or current market cap deciding your portfolio make up, you'll loose money in real terms in the long run. I'm not saying you should pick stocks, but you can easily go through a list of the top 50, and exclude those who are either overvalued on a P/E basis with regards to their growth prospects, and invest on that basis.

Overall, very sound advice. I wish the article had mentioned buying a bond index fund as well though. Bonds tend to go up when stocks go down. So a bond index fund will reduce risk by increasing the diversification in your portfolio.

Also, Vanguard has very low fees for their index funds.

How about the Permanent Portfolio? Build for good and bad times? http://en.wikipedia.org/wiki/Fail-Safe_Investing

Rather than average investors, he seems to be targeting risk-averse older investors.

Picking individual stocks is riskier, and more volatile sure, but even average investors can leverage that.,