The Smarter Investor

In the famous Aesop fable "The Tortoise and the Hare," a hare constantly teases a tortoise for moving so slowly. One day the tortoise replies he can beat the hare, so the hare challenges him to a race. The speedy hare is so sure he'll win that he takes a nap soon after the race starts. When the hare awakes, he goes to a nearby field to eat cabbage while the tortoise crawls his way on the race course. Tired from the meal and the sun, the hare falls asleep about halfway through the course. To the hare's surprise when he awakes, the tortoise has beaten him to the finish line.

The moral of this fable, slow and steady wins the race, is often used in investing. It reminds people that they can be rewarded if they continually invest money over a long time period—like the tortoise winning by staying on the race course. People who focus on getting rich quickly can make bad decisions and mess up their investment plan, and ultimately fail to reach their goal like the hare.

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Have you ever met the crazy conspiracy theorist who is convinced that a well-executed and malevolent plot lurks behind most events? These were the people whose eyes bugged-out during Y2K, who are convinced that Apollo 11 never landed on the moon, that the World Trade Center was actually blown up by the United States to garner support for invading the Middle East, and the list goes on. The conspiracy thread has woven a thick yarn throughout the ages. It would be worthy of a good belly laugh if it weren't for the sick feeling you get when you realize that some people actually believe that stuff.

There is one conspiracy theory, however, worthy of your attention: Wall Street doesn't want you to know that their industry is a sham. For Wall Street, the hypnotic malaise they cast over the unknowing investor is nothing less than an $11 trillion dollar shell game. Their gambit makes the baccarat table at the Bellagio look like the neighborhood lemonade stand.

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Investing is not an end unto itself, but rather a means to an end for most people. Whether your goal is a comfortable retirement, funding your kid's college education, or buying a house, your savings and investment activity is a means to those ends. Here are some ways you can monitor your investments to ensure that you meet your goals:

Create a financial plan. A financial plan helps you determine how much risk you need to take to potentially earn the types of returns to fund your goals over the desired time frame. Moreover, your financial plan should spell out the types of investments—stocks, bonds, cash—and the appropriate allocations needed to meet your goals, while remaining consistent with your risk tolerance.

[See Investors Continue to Chase Short-Term Performance.]

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The news is flooded with doom-and-gloom scenarios coming out of the crisis in Japan. The devastation and loss of life are tragic and our prayers go out to everyone affected in the region. As a member of the financial community, this type of situation typically means that people begin frantically asking for our predictions and theories about how it will affect the economy. Unfortunately, it's impossible to predict what will happen. Just like it was impossible to predict what was going to happen the day prior to the bottoming out of the S&P 500 two years ago. In order to understand the complete lack of predictability we are faced with, let's take a look back over the past two years.

We recently reached the two-year mark since the market low of March 9, 2009 when the S&P 500 hit a low of about 676. To put this low into perspective, one should note that investors have to look back to 1996 to find a time when the market last registered that index level.

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