We'd been underweight in U.S. securities since the summer, but with the recent sell-offs we decided there's a buying opportunity. As everybody else is selling off in these panic waves, we come in and buy. For individual investors, the key is not overreacting. Flip it around and think of it as the stock market is a bit on sale. The bull market we had through 2007 was getting very long in the tooth, so this is actually a healthy retrenchment.
International diversification, unfortunately, is dead. The risk-return tradeoff of U.S. versus international stocks is tighter than it's ever been. They're really just one asset class. If you're looking for that extra spice of risk in your 401(k) the place to put a little bit of money to work is emerging markets. The caveat is that they've been extremely strong. China is very overpriced in its own domestic market, for example, but there are opportunities like Brazil and Eastern European nations that look like they will have fairly decent GDPs no matter what the U.S. does.
Last updated February 06 2008: 10:16 AM ET