Taylor Larimore is co-author of "The Bogleheads' Guide To Investing" and retired chief of the Federal Small Business Administration's finance division in south Florida.

The former Internal Revenue Service officer is also a frequent contributor at the popular Bogleheads' indexing forum.

IndexUniverse.com (IU) caught up with him recently to find out his views from a passive investor's perspective in these days of $4-per-gallon gas prices and a slowing economy.

IU: In these trying times, do you think it's reasonable to make tactical allocation changes?

Larimore: You are younger than I am or you might not call these "trying times." I have endured at least 10 bear markets when the S&P 500 declined 20% or more. I was eight years old when the Dow plunged 89%. My dad's restaurant failed for lack of customers, and we had to move into my grandparents' Florida home. Later, there were: World War II, the cold war, the Cuban missile crisis, President Kennedy's assassination, the Vietnam War, the Korean War, 15% inflation, hostages in Iran, Y2K and dozens of other crisis situations. Each time, the financial pundits were forecasting gloom and doom. But you know what happened? The Dow climbed from 235 in 1950 to about 12,000 today—and that does not include dividends. So, to answer your question about "tactical allocation changes" (which is really market-timing), I think the best strategy is simply to hold a broadly diversified portfolio and stay the course.

IU: Critics argue that buy-and-holders are simply sticking their heads in the sand as risk rises in the marketplace. How do you respond to those views?

Larimore: No one can forecast what the stock market is going to do. Mr. [John] Bogle has stated that he never met anyone who can time the stock market successfully and consistently. Research confirms the futility of trying. There is always risk in securities markets. The way we manage risk is to diversify among different types of securities—including bonds—and then stay the course. That doesn't mean do nothing forever. We still need to rebalance and make necessary adjustments based on our own personal situation—not on market forecasts.

IU: Do you see investors going to extremes in overweighting portfolios to take advantage of the so-called value and small-cap premiums? What are your suggestions?

Larimore: I have been investing for more than 50 years, which is about average for most investors during their working and retirement lifetime. If there is one thing I have noticed, it is that investors tend to invest in what's doing well during the past few years. Morningstar has a tic-tac-toe style box of nine asset classes. In 1999, large-cap growth stocks had the best 15-year returns and investors shunned small-cap value stocks, which had the worst 15-year returns. If you looked at the tic-tax-toe box in December 2006, you would find that investors loaded up on small-cap value stocks, which then had the highest 10-year returns. It's the same chase-the-hot-stock behavior in reverse. Instead of jumping in and out of different asset classes, I think it is better to hold them all in a broad-market index fund and stay the course.

IU: Is Vanguard leading investors astray by also offering actively managed funds?

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