Alex Bentley's  Instablog

I spoke to a woman the other day who was worried about the market and cashed out a while ago. I had lunch with a friend who had done a similar thing. This is all too common. I've had numerous conversations with people who are moving retirement money they will not need for years in and out of the market.

All these people, as well as other potential clients, have asked me the same question -- "Should I invest in the stock market now?"

The answer to this question is simple. I don't know. Moreover, no one knows.

I can understand why people would ask this question. Personal finance sites are always filled with articles saying the market is heading up or down, hitting highs or lows, etc. Lots of people spend a lot of time prognosticating on where the market is going. Many serious looking people are on TV saying the market is fairly valued, overvalued, or undervalued. This causes a lot of second-guessing. No one wants to put their money into something that they think might go down and everyone wants to feel they are investing at the right time.

It seems that most personal investors are consumed with trying to time the market. They are putting all of their energy into an aspect of investing that they can't control -- what will be the return of the market and when is the best time to get that return? They are driven by fear or greed, feeding into and drawing from the current market sentiment. They jump in and out of the market, trying to get the up market while avoiding the down market.

These people are doomed to failure.

A pet peeve of mine is people who point out a problem without presenting a solution. So I've told you want you can't do and perhaps insulted you by doing so. So what is my solution?

I suggest that you focus on what you can control. In investing, that would be your asset allocation, your investing costs, and your taxes.

Choose an asset allocation that fits your age and risk profile. Consider your "age in bonds" as a starting percentage and adjust from there. Invest in diversified index funds that are low cost and extremely tax efficient. Look at your portfolio in January of every year, rebalance if you are 5% off your target, and change your asset allocation every five years if necessary.

Spend the rest of your time golfing, biking, snowboarding, or whatever makes you happy. Don't waste your time with daily market movements. Don't wake up in a cold sweat in the middle of the night thinking about the latest financial crisis. And never ask the question "should I invest in the market now?" again.

I probably shouldn't be telling anyone this (as a financial advisor), but money management can be really easy. So easy that you think you are doing it wrong or missing something.

Here are some basics for people who just don't care or think they are too stupid to figure it out. Remember, these are just guidelines, and your situation might be different, so please do not take this as specific investment advice.

Let's just say you have $1,000 to invest (it could be $1 million and nothing would change). Your investment choices are stocks or bonds. A good choice for stocks is the Vanguard Total World Stock Index ETF (VT). A good choice for bonds is the Vanguard Total Bond Market ETF (BND). Why do I choose these ETFs? They are both widely diversified and very low cost.

Now that you know what you are going to invest in, how do you decide what percentage to put in stocks and what percentage to put in bonds? Simple. You invest your age in bonds. So if you are 40 years old, you are 40% bonds and 60% stocks. If you are a man and you are married and your wife is younger, then invest her age in bonds. Why? Because you will probably be dead before her and she will be around to spend the money. And I am not joking.

Your next step as a responsible individual investor is to rebalance. That means keeping the percentages static as markets fluctuate. Once a year, in January, look at your portfolio. If it is more than 5% off, rebalance. If you are adding new money, add the value of the new money first and then apply the percentages. Example: Your portfolio is now worth $1,200 and you want to add $100. Take $1,300 X .4 = $520. That is your bond amount. Your stock amount is $1,300 - $520 = $780. Buy and sell accordingly.

Keep your life simple. Don't change the percentages every year. Just change them at age 45, 50, 55, etc. Your portfolio is going to be around a long time and you don't need to tinker with it as much as you think.

Good luck!!

Disclosure: I am long VT, BND. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Baldwin Partners Group, LLC is a state registered investment advisor. Alex Bentley is the CEO, Founder and an investment advisor representative of Baldwin Partners Group, LLC.

Ok, I will admit I'm in a love/love relationship with The Vanguard Group. I generally feel they stand for what's right in the world of investing in a sea of wrong.

But I do quibble with them on one thing that reflects a U.S.-centric approach to investing that is a throwback to the old days: Investing vs. "international" investing. For example, is the Vanguard Total Stock Market ETF (VTI) the total stock market? NO! It is the total U.S. stock market. Same with the Vanguard Total Bond Market ETF (BND).

I can hear people saying, "Alex, who gives a bleep? It's just semantics". I say baloney. We need to get rid of this labeling. We are not in the 1950's. You can't smoke in your office while swilling martinis anymore, and you can't assume that the total stock market is only the U.S.

Globalization has opened up stock markets outside of the U.S. You can now actually invest around the world with decent liquidity. You couldn't do that back when you were smoking Camels in your office.

Some people still say your "international" allocation should be 15-20% of your portfolio. I find this advice absurd. Hey people, guess what? The total capitalization of the U.S. stock market is about 50% of the world stock market capitalization. I'm a fan of diversification, and putting 80% of my equity allocation into half of the world's stock market makes no sense to me.

So what makes sense? I feel that you should allocate your equity assets in proportion to each market's capitalization. That was almost impossible not long ago. Now it is easily done with the Vanguard Total World Stock ETF (VT). I have no idea which country, region or currency is going to be dominant in the next century. So instead of guessing I'm spreading out my chips and betting on everyone.

The next step into this bold frontier will be the ability to allocate your fixed income assets globally. I'm still waiting for Vanguard to have a Total World Bond Market ETF. At some point I believe they will. Then you can have a two ETF portfolio that has the kind of diversification that prior generations couldn't even fathom.

Vanguard needs to do a clean sweep and re-label all the relevant funds to remove this legacy bias towards the U.S. The next time their CEO calls me to chat, I'll make sure to let him know.

Disclosure: I am long VT, BND. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.

Additional disclosure: Baldwin Partners Group, LLC is a state registered investment advisor. Alex Bentley is the CEO, Founder and an investment advisor representative of Baldwin Partners Group, LLC.