Investor Advice From the Motley Fool

We called Alexandria-based Motley Fool, which has been advising individual investors like you for 15 years and asked senior analyst Tim Hanson our Wildly Popular Five Questions:

1. What's the one thing individual investors should keep in mind during these turbulent times?

Hanson: Don't panic. While this may seem like a once-in-a-lifetime event (and in its intensity, it's getting close), the fact of the matter is that the stock market cycles through boom and bust every eight to 10 years or so. Our economy has a 100 percent record of recovery, and though it will take some time to sort through this housing/credit/economic crisis, we'll get there in the end.

So, stay stoic with your money and be careful not to let emotion trump your sound long-term, asset-allocation strategy. If you don't have an asset-allocation strategy, now is a very good time to put one in place.

If you're young, that means sticking with the stock market and buying more stocks today. If you're closer to retirement, that means making sure you're protecting your principle by owning something like Treasury Inflation-Protected Securities, or TIPS.

2. Is there any such thing anymore as a "safety stock?"

Hanson: In the short-term, there is no such thing as a "safety stock." But that was never the case. If you're willing to take a long-term view, however, there is no better place for your savings than in the stock market. And despite recent volatility, that's still the case today. If you want a simple solution, then you should do just fine by sticking with an index fund such as Vanguard Total Stock Market (VTSMX).

But if you are looking to really take advantage of the current crisis, we've been telling our Motley Fool members to start increasing their foreign exposure as high as 50 percent to 70 percent. A host of other financial experts have also come out recently with similar recommendations. And that's because the nature of the global economy is changing. The U.S. is becoming less central to trade and development and countries such as China, India and Brazil are both growing faster and offer important diversification. Remember, if you're a U.S. investor, it's likely that the value of your savings, home, and job are all denominated in U.S. dollars and rely on the health of the U.S. economy. (Note: Hanson does not own shares of VTSMX.)

3. Some advisers are encouraging people to take 10 or 20 percent out of their stocks and put it in an interest-bearing savings account. What do you think?

Hanson: That depends on when you need the money. If this is cash that you've had in the stock market but that you need to pay your bills over the next 12 to 36 months, then yes, put it in a savings account or in something like TIPS. You need to make sure it's there when you need it. (Incidentally, that money should never have been in the stock market in the first place.)

But if this is money you're saving for a retirement that's five or more years away, then I would keep it in the stock market and take advantage of current volatility to upgrade your portfolio. That means adding new money to the market and reallocating your portfolio into the best-priced, strongest names.

4. I was thinking about doing some home renovations. Should I go ahead or not?

Hanson: Again, that depends on your individual situation. My wife and I are actually planning on doing something with our basement in the near-term, but we've dialed back our plans. If you have the money and believe that the improvement would benefit your quality of life, then go ahead. But if you're hoping to renovate to increase the value of your home, then I'd reconsider. Home values are going to continue to drop in the near-term, and you may not recoup the money you thought you'd been "investing" in a renovation.

5. What should I do with my retirement accounts if I plan to retire in five years? In 10 years? In 20 years?

Hanson: If you're retiring within the next five years, I'd make sure you have a sound asset allocation strategy that has your savings stashed in 70 percent to 80 percent bonds and treasuries and considerably less in equities. That's because you're going to need that money soon and want to protect the principal.

If you have 20 years or more, I'd still be tilting heavily toward equities (and particularly toward foreign stocks for the reasons I mention above), and be regularly saving and adding new money to the market.

If you're in between, I'd take a look at my portfolio to make sure I'm comfortable with my asset allocation plans. You have some flexibility when you're 10 years away from retirement, but you want to make sure you have a healthy mix of equity and non-equity investments.

If you're looking for greater detail on the percentages that could be right for you, I'd consider putting the cash in a Target Retirement fund, which will allocate it for you based on your time to retirement, or take a look at how these funds are allocating their assets and then make sure you're not too far off in your own portfolio.

-- Frank Ahrens

October 8, 2008; 5:08 PM ET  | Category:  business
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..protect your principal....

Posted by: Alan M. | October 8, 2008 5:41 PM

As of my last 401(k) statement, my Fidelity 2010 and 2015 target retirement funds -- supposedly safely conservative -- had lost 30 percent from last year. I dread my next statement which I guess is coming any day. I'm 58; I'm toast. As for the advice about not being in the market in the first place if you actually need the money for bills, WTF? My 401(k) doesn't allow anything but market involvement. I'll never be so well off as to not need to spend my savings. I've switched to a bond fund with a foreign mix, by the way. But hearing anyone recommend staying in the market sounds like a call for volunteers at Gallipoli.

Posted by: lee anderson | October 8, 2008 5:58 PM

Sorry, but wrong advice. Dead wrong. Federal Reserve Chairman Ben Bernanke said in a speech today that it is going to get worse--considerably worse--before it gets better. Buying stocks this week is throwing money away. Bank stocks in particular are a deadly. More banks are going down, and when they go the shareholders lose everything. But even old stand-bys like GM are close to the edge. They've gotten billions in bail-out loans from Congress to re-tool but the new cars won't be rolling off the lines for two years; meantime nobody wants a huge SUV or can get a loan for one if if they did. This is not a time to mess with the stock market.

Posted by: Rafaelo | October 8, 2008 7:57 PM

Lee, hang in there. Sit with someone in your area who's qualified to talk about sustainable withdrawal rates and review what you're doing--but NOT change it in the middle of this emotional carnage. For God's sake look what you're jumping into when you go into all bonds. Interest rates at extreme lows lead to equal, if not greater, risks in bonds, particularly foreign, which will ride the wave of the dollar weakening/strengthening unless its hedged out, and particularly after the Fed and Treasury dump a couple of trillion dollars into the cash markets, which if they can't pull back out will lead to a hefty burst of inflation at some point.

Reconsider what you're doing and dance with the girl that brung ya until it's a more opportune time to reassess your risks. One risk is a lack of stock exposure, which will lead to a failure of almost any reasonable withdrawal rate due to their lower returns historically.

Posted by: Milo | October 8, 2008 7:59 PM

The Motley Fool is living up to its name. This is the same stupid advice which is always given by the people who make their money by skimming the cream off yours. I can repeat this advice with my eyes closed. Stay the course! Ride your investments right into the ground like in 2000! Your biggest enemy is inflation! This advice gives the smart money time to cash out and get the heck out of Dodge.

Remember, these guys were giving the exact same advice a month ago -- BEFORE the dow dropped 2000 points. I bet you wish you had switched to an all-cash position back then instead of listening to these fools. Now the market MAY have hit bottom -- or it could fall another 2000 points before this is all over. Personally my risk tolerance is nowhere near high enough to gamble my life savings on the hope these fools are correct this time.

I am sick and tired of hearing this same recycled advice over and over again. "Your biggest risk is capital erosion due to inflation." No, your biggest risk is losing every single cent you have invested in the stock market. See the NASDAQ crash of 2000, or if that's too recent, look back a few years to 1929. I have a couple of relatives who rode six-figure portfolios right down to nothing in 2000 based on this same bad advice.

Stop gambling with your money. Don't invest in anything you don't completely understand. Otherwise you're just another sheep waiting in line to be fleeced. Remember the epitaph of the financial services industry: Past Performance is No Guarantee of Future Gains..

Posted by: Steve | October 8, 2008 8:17 PM

I am not sure if getting advice from Motley Fool is necessarily good. These are the same guys who had tens of portfolios that performed miserably during the previous bear market. They had a website and gave a lot of useless advice and sold a lot of junk (like hats etc.). I'd like to know if they still have all their Foolish portfolios and if they publish on their website the performance data for their Foolish portfolios.

Posted by: Sam | October 8, 2008 8:18 PM

Invest in index fund, especially Vanguard fund?! You may as well give your money to the AIG's crooks.

My children's college funds were vaporized to nothing with Vanguard index and equity funds investment wisdom. Dump these crooks fast

Posted by: Anonymous | October 8, 2008 8:45 PM

That's hilarious. "Our economy has a 100 percent record of recovery." In a similar spirit, I might conclude that no illnesses are ever fatal. Ask anybody you know! Every one will confirm this. They have each recovered from every illness they ever had.

Posted by: Parke | October 8, 2008 9:26 PM

We need some transparency in financial advice. I would be a lot more confident if financial advisors revealed where THEIR money was invested. I bet the Wall Street oligarchs have been out of equities for a long time.

Posted by: SteveIowa | October 8, 2008 9:40 PM

Look, I know it's been a crazy few weeks on Wall Street, bur are you kidding me with this stuff???

It's always refreshing to see what short memories investors have.

In the mid-1990s when Wall Street was closed to the average investor, The Motley Fool was the first place I can remember standing up and saying, "Hey, is it just us or do most mutual funds charge too much and lose to the market?" And by all means, Sam & company, if I'm wrong please come forward with specific examples of who was saying this stuff first.

"Don't invest in anything you don't completely understand." Gee, thanks Steve....let's see, where have I been hearing that for years? Ohhhhh, that's right, The Motley Fool.

Sam, you'd like to know "if they publish on their website the performance data for their Foolish portfolios"? Turns out they do, but it's really hard to find. Turns out Motley Fool hides that information.....on their homepage!

You haters remind me of what the late, great James Brown're talkin' loud and sayin' nothing.
Like a dull knife
You just ain't cuttin'
You're just talkin' loud
And sayin' nothing

Finally, let me close by thanking Frank Ahrens and all his colleagues in the business section at the Post for their outstanding coverage over the past month, both in the newspaper and online. Makes me feel even better about my investment as a subscriber to the Post.

Posted by: Ernie | October 9, 2008 12:16 AM

If you take all your money out of the market now, you will have zero participation in any possible gains in the future. If you have long-term investments sitting in a savings account, you might not lose money, but your money will not grow in a meaningful way. (Just like cash under the mattress.)

Don't try to time the market--it NEVER works. The Motely Fool advice sounds simple, but it takes real effort to learn what you are investing in and real discipline to follow. This is the time that separates the fools from the Fools. Time to carefully examine what you have and where you have it. This is the time to learn from our mistakes, make a plan, and follow through.

Posted by: EconGirl | October 9, 2008 1:24 PM

my question is that as american stock mkt down under -40% but why indian stock market suffering 10% more ha. mean to say indian mkt 50% minus.........
why is it so????????????

please comment on it

Posted by: Darshan Panchal | October 10, 2008 7:07 AM

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