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Some thoughts about your friend's $200K to invest:

1. Your friend has a huge advantage many of us no longer have - time. With a 40+ years investing horizon, she can earn impressive returns over time, with patience and persistence, by riding out the inevitable market lows.

2. Simpler is better. Invest by indexing with broad-based mutual funds (like the low-cost Vanguard total stock market and total bond market funds mentioned in other posts) or via exchange traded funds. For a simple and elegant explanation, take a look at Scott Burns' columns in the Dallas Morning News on Couch Potato investing:

3. Investing in individual stocks, while fun and challenging, is generally not recommended for the average investor. She can do better than most 'professionals' by patiently indexing, will incur much less risk, and will have much more time left over to enjoy life.

4. Full-service brokers, as shown yet once again by recent events in the news, have huge conflicts of interest and often don't have their clients' best interest at heart. They make money by selling high-commission, high-cost in-house products. AVOID THEM. Open an account at a discount broker, like Ameritrade or Brown.

5. If she decides to engage the services of a financial planner, use a FEE ONLY one.

6. Two critical investing concepts are adequate diversification and rebalancing. She gets diversification by splitting her portfolio between stock and non-stock investments. To avoid overweighting a portfolio in any category, periodic (once every year to 18 months) rebalancing between asset categories is essential.

7. An all-stock portfolio, or an all-bond portfolio, or an all-anything portfolio, is too risky. If your friend can handle some increased risk, especially while she's younger, a 75/25 mix of stocks to bonds is as far as she should go. Once she hits middle age, she should move to the traditional pension fund mix of 60/40 stocks to bonds. Nearing retirement, a 50/50 mix of stocks to bonds is more conservative. Of course, she can always just start with the 50/50 mix and stay with that indefinitely.

8. Ignore the noise, especially from pundits, CNN, and the financial magazines. No one knows what the market will do in the short run.

9. Stay away from the more exotic investments - options, futures, and especially commodities. She can lose her money faster and have a much better time in Las Vegas.

10. Some very important 'non-investment' things she should have: Six months of living expenses held in a money-market type account; no revolving credit card debt; an up-to-date will; adequate insurance (both term life insurance if someone else depends on her income and disability insurance); and a durable power of attorney.
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