How do I decide which of your model portfolios to follow?

One approach is to pick a strategy based on your investment time horizon.

If you'll be needing your money in three years or less, our Income Model is probably the best bet. It aims for a long-term return of 7% with minimal risk of loss. There's no point in taking on a lot of market risk if the money is needed for living expenses in the not-too-distant future.

If you plan to invest for more than three years but less than eight, our Growth and Income Model makes the most sense. It aims for a long-term growth rate of 10%, with bear-market loss exposure of 10-15%. With a 3-8 year horizon, chances are you'll do just fine even if a downturn takes place somewhere along the way.

If your investment horizon is eight years or more, consider our Growth Model. The goal here is a 13% long-term return, and we try to hold profitable positions for at least 12 months to qualify for long-term capital gains in a taxable account. This portfolio could lose 25% or more in a bear market, but over eight years or more you stand a reasonable chance of earning better-than-market returns for the period.

If your horizon is eight years or more and you want a more aggressive approach, consider our Select System. This portfolio invests only in Fidelity's sector funds, and aims for an 14% long-term growth rate. Short-term it could lose 30% or more in a bear market, but over a long stretch of time it may turn out to be the most rewarding.

For more information on our model portfolios, please click here.

Do you time the market by holding cash during bearish periods?

No. It's our belief that any form of market timing would only dilute our returns:

• The concept of timing the market seems simple when reflecting on history, but predicting the future is an entirely different game – and the statistics are formidable for anyone who bets against stocks. The market moves up about two-thirds of the time, so a cash position has only a 33% probability of being right for any given period. Anyone who regularly moves in and out of cash may cut their average risk level, but they have almost no chance of beating the S&P 500 over a long period of time.

• Those who get out at the right time rarely get back in at the right time. It takes a person who's on pins and needles to take profits just as stocks top out, and it takes a battle-hardened opportunist to jump in at the bottom of a bear market. It's rare the same person can flip between those two personalities. More common is the nervous investor who gets out shortly after the market heads down, then remains in cash for the rest of the decline and the full recovery, returning only when the market hits new highs.

• Seasonal strategies don't hold up over time. As soon as they become popular, they self-destruct because some of the participants shift their timing to try and come out better than the rest of the “herd.” Two strategies that are currently headed for oblivion include the four-year Presidential cycle and being out of stocks from May to November. The fundamental reasons for these trends disappeared long ago, so they persist only because investors still believe they work. Eventually, they'll join the things-that-used-to-work scrap heap, just like the January Effect did.

• It's not necessary to time the market, because the opportunity available with fund selection dwarfs any chance to get ahead with timing. A decade ago we did a quarterly study of perfect market timing versus perfect fund selection. It was no contest. Over a 14-year period, perfect market timing multiplied money by a factor of 25, whereas perfect mutual fund selection (in Fidelity's diversified growth lineup) grew it by a factor of 200! These results could never be achieved in the real world, of course. But they make a good case for ignoring the market's ups and downs.

By their very nature, financial markets move in directions that surprise and disappoint the maximum number of participants. If a majority wants to buy, prices move up. If there are more sellers than buyers, prices fall. The only way to win is to stay in the game and benefit from the long-term trend.

What is your relationship with Fidelity, and how do you manage to follow their funds when you are located in California?

As an independent advisory service, we have no business connections with Fidelity. And other than the friendly Fidelity people who provide us with public information, we have no inside contacts either. Our decisions and recommendations are based on pricing data, the type of stocks held in the fund's portfolio, industry group weightings, stock/bond/cash mix, foreign holdings, and risk-adjusted performance. All of these parameters are available to the public on Fidelity's web site. I've found that good funds can be identified through the effective and intelligent use of portfolio data.