a) To your point about staying invested, an auto-pilot plan is the best creation for most people. I was pleasantly surprised to find a modest sum in my 401(k) ( you can tell that I am not the kinda guy who looks at his account every morning), when I was doing my year-end review.

b) Investing goal and time horizon are important. The goal part if a bit psychological — it feels good to see that you have move in a positive direction towards a goal and that keeps you going. Horizon is of course important to determine the asset allocation. Divide your goals into short, mid, and long-term goals and pick the "right" ( I put that in quotes because I think nothing is that certain) baskets to invest.

c) As you pointed out, play with stocks strictly with your play money. Unfortunately, I think most people come to this conclusion the hard-way. Some make it big initially and go for it, and some just recoil after a few missteps. I still think there is value in picking individual stocks and taking on some risks, provided you don't sink your entire savings into it. No risk, no reward. Stick to < 10 companies at any given time so that you can keep tabs on the companies and stocks. Investing in your company's stock may be good because you understand what is going on on a day-to-day basis. Just my experience.

d) Active vs Index: I read quite a bit on this topic over the break. I understand that asset allocation plays a more significant role than individual fund picking — no fund manager could have saved me in 08 if I had 100% in stocks. I am thinking of a hybrid approach — active for my 401(k) and index for my non-IRA accounts — and here is why: There are two camps; why believe either of them completely . Seriously, I find most of the index vs actively managed argument to be a bit generalized. Index funds beat more than 80% (don't quote me on this number) of actively managed funds; For most average (am I average, above, below? ) investors index funds are the best choice etc. To confuse matters even worse, even in index funds, there are plenty of them, and not all of them follow the same indexing strategy.
Yes, there are a lot of crappy funds out there with ridiculous expense ratios, but I still feel that there are good fund managers with good long-term track records that run funds with reasonable expense ratios. There are some good resources such as Morningstar, Kiplinger's etc. that analyze funds and managers. Hey, if they can deliver me better results, why not atleast allocate part of my portfolio with them? And frankly, if I end up with 100k less in my retirement account because of this decision, I don't think I will kill myself . So I decided not to trust any one fully and decided to go the active way for 401(k), where the tax effect of turnover doesn't matter and index for my non-IRA, where taxes have a big impact.

e) The benchmarking metric is another confusing thing: a nice plot of a hypothetical $10000 that someone invested 10yrs back. That is not how I invest. I dollar-cost average and my returns have no correlation to those graphs. Morningstar has come up with another metric called "Investor returns", which I am yet to follow-up on and understand. I have often wondered why there isn't a model that says if you DCA twice every month, here is how you would've ended. I realize that it is not a generic model, but it is still something close to what most investors do/are advised to do.

This is where I stand with my investing wisdom. I am sure I will mature as I learn more in the years to come. I will reflect on this post someday and think about how immature I was, like I do in other walks of life.

Still for all that goof-up, the poor individual investor has to pay him annual (mis)management fees In case if the individual directly engages himself, he will not churn the portfolio as much and would wait till the market gets back in its upward momentum. His risk at best is limited to blocking of capital in the short to medium term and not erosion of capital to the extent he pays management fees for a manager that in fact leads him up the garden path attributing to his so-called `expertise', that is often nothing but pureplay randomness disguised as consummate skill.

3) Back to stocks if you have liquidity to take care of the family you need to worry only about 1 decision… Buying on sale like thanksgiving purchases .. If we buy at major crashes we will always make money…

Thanks
Sankar

Wishing you a happy new year…

1) This is a question for indians who will return to USA in the short term (May be many people like myself who have this question… ) – For my 401K i have invested in pimco Stable value fund… This fund gave 5 % annual return for the past 10 years (including 2009)… As of now it has beaten the stocks funds available in 401K over 10 year time period. Are there such funds available for non 401k which are also liquid?

Reason for this question is long term i am not going to settle in USA and i will go back to India… The exchange rates are not favourable now… I am sure if i wait the exchange rate will go above 50 (Rs/ $) considering the fact real inflation is 20 % in india and when the fed starts increasing the rates the $ must appreciate…. The swings in exchange rates are very high (39 to 52)…

2) My 2 cents on the stock investment and new year resolution (I read it only in June'2009 and missed 2009 sales on indian stocks but still is useful as i may have another 30 + years of investing ahead of me ) – http://www.sanjaybakshi.net/Sanjay_Bakshi/Article…