Buy good things and hold them a long time and you are bound to make money.  That is the common wisdom.  In particular, it is the common wisdom bandied about regarding the stock market.  And as the Dow Jones Industrial Average closes in on 10,000, it seems to be true….except when you consider that 10 years ago the average was about 15,000.  So, the purveyors of this common sense tell us, what they really mean is hold them for 20 years.  They say that stocks will beat bonds over every 20 year period.  Well, it does beat bonds over SOME 20 year periods, but not all. So, it is just not as simple as it seems.

The point that I am making here is that there is no simple answer as to how to invest for the long term.  While it is true that all investing should be long term, and it is likely true that if you hold stocks for 20 years you will make money, the question is how much?  It could easily be negligible and when you add in inflation and taxes to the equation, there may be better choices of places to invest.

This is why we diversify into other asset classes.  There are only five:  equity (stocks), debt (bonds), real estate, cash, and hard assets (gold, metals, collectibles, etc.).  However within each of these broad classes there are lots of choices like international stocks, foreign annuities and bonds, emerging market stocks, and the list goes on and on.  This does not mean you need to hire a broker or so-called financial advisor to help you.  They are expensive, and as I have an extensive background in that industry, they are more motivated by and large by making the transaction more than is it smart.  That’s how a broker or planner is paid, not for success.

So you need to be informed, use resources like yours truly, and try and be smart about how you invest and where and when.  While it is absolutely true that you never know exactly the perfect time to buy or sell, as long as you get it on the right side of the mean return you are way ahead.  Simply, buy closer to the bottom and sell closer to the top and you will be a winner.

Today that means the US Stock market is likely over-priced, relative to the performance of the economy as it is (as opposed to wishful predictions). The real estate market is still dropping as there is tons of supply and limited demand, foreign stocks may be an option if they are denominated in a currency like the Euro that is appreciating against dollar - but beware as they are high right now, and bonds look to take a beating with inflation looming.  So, for the immediate future the best strategy might be wait and see to let trends develop.  Cash, TIPS, and precious metals look to be the smart short term play for now. 

At least, that’s what I think.  Invest in as close to a sure thing as you possibly can when times are tumultuous and let really big risks (like those by the likes of Warren Buffet) be taken by somebody else – at least for now.  You will be way ahead in the long run.