What do I invest in?

Over the past 70 years, returns on stocks have compounded at 11% p.a. Bonds have compounded at about 5.5% p.a., and cash has compounded at about 3.5% p.a, During that period inflation has compounded at about 3% p.a.

Investors who want to earn 9% p.a. compound return over the long run will need to invest about 60% of their money in stocks, 35% I bonds and 5% in cash. New investors will want to have the funds managed in a mutual fund by a professional mutual fund manager. This argues for using a blended mutual fund that is ranked either 4 or 5 stars by the rating service, Morningstar. You can screen mutual funds on your broker’s website or at Morningstar, but here are some suggestions as of November 2008 (Also included as performance benchmarks are the S&P 500 stock index and the Fidelity Cash Reserve (money market) mutual fund):

As of January 2009, examples of several balanced funds to consider include: (Note: At the end of 2007, before the 2008 bear market, the balanced funds below had returns exceeding 9%p.a. over 12 years. If the markets perform as after past bear markets, we may see a rise of 30% or more in the next 15 months. If the objective is to put cash in your pocket by buying stocks at a low price, this is one of the best times in the past 100 years to buy stocks in order to get 9% p.a. returns.)

Compound Annual Returns as of 9/30/08
FUND NAME	FUND SYMBOL	1 Yr	3 Yr	5 Yr	10 Yr
Oakmark Equity & Income Fund CL I	OAKBX	(16.5)	(0.2)	3.8	8.4
James Balanced Golden Rainbow	GLRBX	(10.0)	0.5	4.9	5.0
Janus Balanced	JABAX	(14.8)	(0.3)	3.4	3.3
T. Rowe Price Capital Appreciation Fund	PRWCX	(27.7)	(6.3)	0.6	6.7
Value Line Income	VALIX	(22.7)	(4.3)	2.5	3.4

Benchmarks:
S&P 500		(38.6)	(11.8)	(4.2)	(2.7)
Fidelity Cash Reserve	FDRXX	2.63	4.16	3.34	3.4

The most important investment that you can make is in learning how to invest your own money.