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September 24, 2010


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"When you buy an investment, you should plan on worst-case scenarios occurring when you invest. If you understand the risk from the outset, you are more likely to stay invested for the long term and realize solid long-term gains. "

These two statements hit it right on the head. Where I get on a different path from FMF is re his suggestion that the same worst-case scenario applies at all valuation levels. It is my belief that the worst-case scenario is a CHANGING thing. So those of us trying to keep our risk levels stable need to be willing to change our stock allocations in response to changes in valuation levels.

"It is true that past performance isn’t guaranteed to repeat, but it does give us an indication of what to expect."

Is there only one past performance to look to? Or is there one set of past performance guidelines for times of low valuations, another set for times of moderate valuations and a third set for times of high valuations?


Point #10 is well taken. Investors can go a step further and write out an investment policy statement to include goals, permitted assets, asset allocation percentages and how they will determine the time to rebalance. They can write down how often they will review statement. Then they need to act on it. This will get most people a long ways toward following a disciplined approach.

This post is so true! I would also add that people should look at fees when deciding on what to invest in too. (Assuming they are looking at mutual fund type investments.)

People also need to consider some of your points in number 8 when buying a house. Home values can go up and down, and apparently, people sure didn't prepare for the possibility of home values tumbling like they have.

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