Any thoughts on ETF vs index funds? I read your book and would like to invest in index funds but I live in Europe (Belgium) to be precise and I don’t have access to Vanguard or Fidelity index funds as an individual. It seems however that I could buy ETF’s from those via an online broker or my bank. Oh yes in Belgium we don’t have capital gain taxes

Unfortunately, not many people do this, and studies show that investors put more money in at market tops (more money flowed into tech mutual funds in the first quarter of 2000 than any other quarter). So unless you have proven skill at market timing, your best bet is to invest consistently.

As an example, one could make some effort to replicate a strategy like Warren Buffett’s in terms of getting money into the market i.e. only invest when certain criteria of valuation are met with respect to the whole market. This wouldn’t perhaps help an investor achieve WB’s returns, but it would probably help to outperform the general market indices and provide some downside risk protection. it would also do so in a mechanical way, a little like Ramit’s method but with some more intelligence.

Just instructing people to blindly put money into the markets in a gradual way is somewhat irresponsible IMHO.

End of the day, if you are holding on to your money and wondering if you should be investing in the market given the uncertainties, you’re facing two kinds of risks when it comes to investing. I think of it as committing either Type I or Type II error in statistical testing. So imagine the null hypothesis here is that investing in the stock market is a positive move right now. An alpha error is one of false positive, when you reject the null hypothesis when it’s actually true. So in this case, this represents a case of lost opportunities, when you’re outside looking in, wishing you were in the market and riding an upward swing. But the thing is, there are always more opportunities as long as you have capital and patience. The beta error is one of false negative. So this is the risk when you’re rejecting the idea of investing in the market now even though it is a good thing. So now you find yourself in the position of investing in the market and looking out, wishing you were not invested because you’re losing money. Would you rather be in group I or group II?

I am not sure that your article addresses how someone overcomes the emotional component of investing continually as the market drops. People really need to feel comfort with their investing decisions as the market declines, and too often in my experience smart people — such as yourself — put forth rational cases that make sense “in the long run” but there’s no emotional support behind it. Benjamin Graham himself readily admitted to the passions that fuel investors’ actions and the level of stomach it takes to hold on while your stock’s value drops.

Personally, I completely understand why so many have pulled out of the stock market. The drop has created a great opportunity for investors with stomach and extra cash to spend. But few people have those qualities, and in fact I suspect that will fuel a crisis of confidence in the market for some time.

There’s a soft side to the question “why would anyone keep investing …”? How does someone keep investing after watching 40-50% of their money disappear in a few months, money they don’t have, money they might need if they were laid off? The answer isn’t charts or an appeal to reason or the long-term. The fact is most people need to be “coached” directly through these times; good financial advisers know this, they call whenever the market moves, but unfortunately they won’t be available for most people. I’d suggest as an alternative (just trying to be creative) that people who invest, even passively, form groups and help each other keep their resolve. It’s interesting in our society that people support and coach each other through personal tragedy, but not through something as basic as investing for retirement. It’s a thought, anyway …

The Nikkei index is trading at 20% of the value it had in 1989! http://www.gold-speculator.com/attachments/quin-advisors/652d1233197786-turning-japanese-audacity-reality-24nikk-monthly.png

This could very well happen to the US, especially since they are taking the same steps that led to Japan’s lost decades – not letting anybody fail, taking money from the efficient elements of the economy and offering them to failed banks and automakers, rewarding them in effect, for their inefficiency and incompetence.

Just because something happened for the last 100 years (the US stock market going up), does not mean it will continue indefinitely.

I’m not saying you shouldn’t invest. By any measure, this _is_ a good moment to invest, because after a 50% decline, your chances of making money in the market are considerably higher. But putting all the money you don’t need in 5 years into stock, is irresponsible advice. You might find yourself broke 20 years later wondering where you went wrong.

Why would you ever sell if you were planning on buying back in when the market broke even???

I don’t even have to run simulation on market to tell you that the last two will fail…