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Smith
Faculty Opinion Article
The 30 Seconds Outlook
February 1, 2008
“First, understand that the stock
market is a giant distraction to the
business of investing.” -- John C. Bogle, Knowledge at Wharton,
January 23, 2008.
Investors and market analysts
cannot predict market movements,
thus the rational investor does not
attempt to time the market, but
rather follows several basic rules:
First, portfolios should be
diversified by broad asset
categories so that some classes rise
as others fall. Currently, equity
prices have fallen, but bond prices
have increased with falling interest
rates. Second, broad based index
funds should provide the core to any
portfolio. Third, the index funds
selected should be those with very
low expense ratios, such as 10-15
basis points. Finally, remember
financier J. P. Morgan’s response
when asked if stock prices would
increase or decrease: “Stocks will
fluctuate.”
by John A. Haslem
John A. Haslem,
Professor Emeritus of Finance,
University of Maryland.
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