Q: Is a down economy, such as we're experiencing now, the right time for people to invest?
A: Absolutely. There is simply no reliable alternative to investing as a way of achieving your financial goals. With stock prices slumping, some people are fleeing the market for what they consider the "safe ports" of cash assets or fixed-income assets. Their principal may be safe there, but the meager returns they'll receive may not even keep pace with inflation.

Consider what happens if you place your savings — let's say it's $1,000 — in a bank account that's paying 2 percent interest, and you decide to leave it there for a year. At the end of the year, you'll have $1,020. You've gained 2 percent, but since inflation has been averaging more than 4 percent, your principal will have lost 2 percent plus in purchasing power. You don't lose principal with cash or fixed-income assets, but you do lose buying power. It's what the financial industry calls "inflation risk," and it can be a killer.

Q: If that's the case, how can people avoid the risks of the market?
A: Risk is an inevitable feature of the market. But you can contain and manage risk by following two fundamental principles.

First, always plan for the long term. The biggest mistake of many investors is what we call "chasing performance" — stocks take a hit, so they shift their money to bonds and CDs. Then interest rates drop, making bonds and CDs less attractive, so they come back to stocks. This is a losing strategy, almost assuring that you'll get the worst of all worlds.

Stick with the program. If you study stock performance, you'll find that the market has produced positive returns for every 15-year period in our history. If you were in and out of the market, you might have lost money. But if you stayed in the market for at least 15 consecutive years — no matter which years they were — you made money. Of course, the past is no guarantee of future performance, but it sure is persuasive.

The second principle is that diversifying your portfolio will minimize your risk and maximize your returns. You need a mix of assets that don't correlate strongly with each other. In other words, when some are way down, others are down only a little and maybe even gaining. If all your assets move in tandem, you're taking a tremendous risk.

Q: Do mutual funds fit into that philosophy?
A: They surely can. Mutual funds offer a strong psychological advantage — you're in there with thousands of other investors rather than out on a limb by yourself. That can take some of the edge off our natural fears as investors.

But your mutual fund mix must be diversified as well. They're much like stocks in this regard. If you're in funds that correlate strongly, your position may be fraught with risk.

There's an added element to mutual funds. Some observers believe that mutual funds are a pure reflection of their managers. That may be too strong a statement, but it is true that fund managers are enormously important to the performance of their funds. So it makes sense to study the track record and investment philosophy of the manager for any mutual fund you're targeting.

Q: With so many things to consider, do you think investors can manage their portfolios themselves?
A: They must be willing to commit the time required for self-management. There's so much information available via the Web these days that investors can access most of the material that's available to professionals. Some of that information, it should be noted, involves subscription fees. I always encourage people to take an active role in managing their portfolios. But if they're unable to dedicate at least several hours a day to it, then outside professional help may be advisable.

Q: How can investors team up with the right portfolio manager?
A: First, don't respond to cold calls — they're a horrible way to find a professional advisor. Why in the world would you entrust your life's savings to a stranger who's telemarketing you? Why people ever listen to unsolicited pitches by so-called investment professionals is a mystery to me.

Compile a list of prospective consultants through word of mouth. Set up appointments with them and ask a lot of questions such as: What's your investment philosophy? Who in your office will handle my account? How — and how often — will the account manager communicate with me? Will we have formal portfolio reviews, and how frequently? Ask also for references...and follow up with reference checks.

Explore pricing structures, too. Some professionals have flat rates. Some have hourly rates. Some take a percentage of the growth in the client's account. That's the method I prefer, and I think clients like it as well. They know that you make out only if they make out.

Q: Have any hot stocks for us?
A: Plenty, but I don't tip on the first date. Before making recommendations, I would need to know more about you. What are your goals? What resources are you prepared to invest? What's your time frame? What's your risk tolerance? It's comprehensive knowledge, mature planning and patience that produce success in investing.