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Several months ago, a user started a thread here called "Time For Vanguard Total Stock Market Index Fund" which, if you care, you can read at http://boards.fool.com/Message.asp?mid=26454155&sort=who...

Here's the question that started things:

Would now be a good time to take a nice big positing in a total index fund? With the DOW and S&P off 16% and 17% respectively, wouldn't buying in now gurantee yourself returns of those magnitudes when the markets recover and eventually reach new highs? When we return to new highs is anyones guess, but eventually it will get there.

Thoughts?


Clearly, the user was taking the "standard" advice of index fans in believing that time would heal virtually any potential injury to a portfolio. I pointed out that the S&P500 index at the time of the question was roughly at 1300, and that it had passed through 1300, going up or down, frequently in recent years. Therefore, I said I wouldn't buy the broad market -- or anything else -- just because it's lower today than it was at some earlier point. It could be a case of trying to catch a falling knife.

Two other users, with only tepid enthusiasm, said that it was probably an okay time to buy the total market, but qualified that advice in various ways.

One, Mrparrotfez, reminded the original poster not to ignore risk, saying I balk at the usage 'guarantee yourself returns', because I think it's very dangerous to consider anything guaranteed in investing.

Ziggy29 agreed, saying The only thing you would "guarantee" is that you bought at an entry point 17% below the high, and thus will have a higher return than someone who bought in at the high.

Joel Williams, characteristically, had the chilliest view of the prospects: In the last major decline, the S&P went down over 40% from its high. So if that is any guide, there is over 23% more due off its high.

(Looking back, it is almost eerie how accurate that comment was!)

Now, it seemed to me that the user was looking for endorsement of an idea, and I suspect that he/she may have made the purchase no matter what was said here. But I hope other users, especially newcomers, notice that the replies were all thoughtful and at least somewhat cautionary.

With that in mind, if a person comes here today -- with the S*P only at about 900! he or she might have the same thesis as the poster cited above. If it's low, it must be poised to go up, right?

My first reply is, of course, "I sure hope so!" A rosy view would be to expect the market to behave as it did in 1987 or 2001, and that there could be a big comeback within a year or two.

But there is a truly huge amount of uncertainty and economic displacement going on. So I'm leery of the market behaving as it did in 1929 and thereafter. If so, the full recovery could take decades. And for the same reasons, we might not have bottomed yet.

That fact is pretty sobering. And it should be even more sobering to consider how much different our economy is now, compared to the 1930s, 40s and 50s. We can't rely on manufacturing to get out of trouble, which is how we did it before. We also did not owe the world a zillion dollars back then, in bond obligations and trade deficits. One *could* see things as being pretty bleak, and although it is true that stocks can recover before the economy does, there is no guarantee that they actually will do so.

Of course, I do not know what will happen. I haven't heard anybody make a really credible case for any particular scenario, whether bullish or bearish. So the bottom line now is the same as ever, and should be emphasized. We need to advise users to spend their time on research and study, with the goal of becoming self-reliant regarding their investments. They need to avoid the Greed/Fear syndrome and try to make reasoned, realistic decisions.

They should understand that a board like this is great for comparing notes on specific funds, or news about managers or fund companies or whatever. With such interaction, we can refine our understanding of things that we have already put some work into. We can challenge each other, and in the process perhaps discard old ideas that we did not realize were stale.

But that's a much higher level of exchange and discussion than we're seeing lately. So I've posted this to explain things to any newcomer who wonders at our silence or equivocation. Nobody should ever get the idea that a board like this is a viable place to get quickie "buy/sell" tip. Nothing good comes easy, especially now.
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