Paul Merriman

The conventional wisdom is to spread your holdings among different types of investments and to include--or maybe stock up on--categories of mutual funds that didn't fare so well in the most recent quarter. The experts at making these allocation decisions are professional advisors who need to tell their clients what funds to buy or are managers of funds that are designed as dynamic allocation vehicles for investors.

The conventional wisdom is to spread your holdings among different types of investments and to include--or maybe stock up on--categories of mutual funds that didn't fare so well in the most recent quarter. The experts at making these allocation decisions are professional advisors who need to tell their clients what funds to buy or are managers of funds that are designed as dynamic allocation vehicles for investors.

Over recent generations, stocks have returned about 10% a year. But that's an average. From 1950 to 1995, says the Stock Trader's Almanac, not one year produced a gain of exactly 10%. And after examining all the 10-year periods ended since 1935, Paul Merriman, a Seattle advisor and manager, reports that "30 returned more than 10%, 30 returned less than 10%, and one returned precisely 10%."

In the wrong hands, market timing falls somewhere between occultism, wishful thinking and fortunetelling. In the right hands, it stimulates thinking about cycles of market spikes and plunges.

Paul Merriman is a Seattle money manager who shows all the signs of having too much money and too much time to think about what to do with it all. Since he's also a creative thinker and a family man, he often comes up with investment ideas that are grandiose, employ every tax angle and arcane investment product and benefit his heirs. His latest "big and preposterous" (in his words) plan does all of the above and may hold some seeds of advice that the rest of us can use.

In the pursuit of just about any savings and investment goal, time can be a formidable ally. With enough time on your side, you don't need to be a wizard at picking stocks or other securities to amass a large nest egg. You don't need any skill in timing the markets. You don't even need a large amount of capital to start out with.

Some mutual fund investors will find it more expensive to quickly trade in and out of funds, thanks to a change announced Friday by Charles Schwab & Co.

"Small companies" may bring up the image of family-run operations that make up the backbone of America, but many of the publicly held firms that comprise that sector are neither stable nor reliable. Advisors often suggest "small-capitalization" mutual funds as a long-term investment and a good way to diversify an investment portfolio. But investors must be prepared for extreme short-term volatility. In fact, just in the last year, the small-company fund sector has seen very wide swings.

Foreign stocks had been the shining stars in many U.S. investors' portfolios from 2003 through 2007. This year, they're beginning to look like black holes. With the global economic outlook fading and the dollar rebounding, Americans' foreign holdings are suffering a double-whammy. If you haven't checked your portfolio lately, you may be in for a shock. The average foreign stock mutual fund has plunged 18.1% year to date, according to Morningstar Inc. That's more than double the 8.

The rush by U.S. investors into foreign stocks reached a new level in January, with a record $23.6 billion in fresh cash pouring into international mutual funds, a trade group said Monday. The inflow -- nearly three times the amount investors pumped into U.S. stock funds -- underscored one of the biggest changes in Americans' attitudes about investing over the last year: Many people are far more interested in sending money abroad than keeping it home.

Congratulations are in order: Investors are becoming more knowledgeable about mutual funds and are less likely to panic during market downturns. At least that's the upshot of a new study by the Investment Company Institute, a Washington-based trade group for the mutual fund industry.