For most of the past two decades, every January has been a time of heavy hype for IRAs as banks, mutual funds and brokerages vie for Americans’ retirement money. Now the hype has escalated with the introduction of the new Roth IRA. It’s been called everything from a dangerous boondoggle to the greatest gift Congress ever gave individual investors. I think the truth lies somewhere in between. Used correctly, a Roth IRA can be a terrific tool for building a significant nest egg over a lifetime of investing. Used incorrectly, it can be an expensive mistake.

Everybody seems to want you to buy mutual funds. The advertisements and sales pitches in newspapers, magazines and in the offices of financial planners all tell you to buy. The articles in the popular and financial press tell you to buy. But in the life of every investor there is a time to buy and there is a time to sell – and the selling decision gets short shrift in financial publications. The articles that tout the "best funds to buy now" rarely are followed up later with articles on which of those funds to sell, and when.

If picking mutual funds were as simple as buying those with the best recent performance, accumulating wealth would be a cinch. Pretty soon, we’d all be billionaires. While this is obviously impossible, too many investors continue to chase performance. Mostly, that chase is in vain.

You know we advocate diversification as one of the best ways investors can enhance returns and manage risks. We know that asset allocation, a fundamental form of diversification, is the most important decision an investor makes.

One of my favorite newsletters is The Hulbert Financial Digest. Their job is to track the performance of newsletters like ours. The following is an article from the October 21, 1996 issue that I found interesting. (Reprinted by permission, The Hulbert Financial Digest, 316 Commerce Street, Alexandria, VA 22314, 1-703-683-5905. Or contact their web site at... http://www.hulbertdigest.com.

Just about every day somebody asks me what I think the market is going to do for the rest of the year, or over the next quarter – or even the next week. I’m not qualified to make that kind of prediction and I don’t think it’s very useful. But I am often asked a more interesting and useful question: "What is a reasonable rate of return that I can expect on my investments over a long period of time?"