DFA has started coming out with so-called core vector funds. These include large- and small-growth and value stocks in one portfolio. "I want to know how much chili powder we're putting into the beans and meat, so to speak," Evanson said. "I prefer to use my own building blocks."

But he adds that there are many different ways to configure portfolios, based on personal preferences and situations. "The key decision is the ratio of equities to fixed income," Evanson said. "That's the best measure to figuring out how much pain you're willing to accept in exchange for possibly higher returns."

He stresses to investors that although predictions of future gains are based on the best available data using statistical modeling techniques, they're not anything to bank on. "They can give us some hints and clues," Evanson said. "But as far as being definitive and certain, there's no way."

A case in point he says is bullish forecasts by analysts this week for a rise in corporate earnings by large companies. But the veteran investor also notes that at the same time, the trailing price-earnings ratio on the S&P 500 is running around 25.8—historically quite high.

And such discrepancies aren't unusual when trying to use past results to predict future returns, Evanson adds. As a result, he doesn't put much weight in any such forecasts. "Predicting the future is all about marketing," he said. "As soon as you learn that you can't predict what's going to happen, the sooner you become a much more focused and realistic investor."

Key Objectives 

Keeping his clients focused on their long-term financial goals as well as their keeping their emotional health strong during market slumps is an essential part of any motivated advisor's job, Evanson says. And that could become even more important in coming years.

"Investors have been spoiled by 25-26 years of relatively short periods of downturns and relatively long periods of healthy gains. So in my opinion, people have become spoiled and expect continuous gains. Based on history, that's fairly unrealistic," Evanson said.

What if that doesn't happen again? "You're going to see a decrease in the number of investors who believe that stocks can make them money," Evanson said. "The psychology of investing is going to change."

At the top of bull markets, more than half of Americans own stocks. That has dropped to as low as 10% in 1982, Evanson says. "If the market crashes, someone with a very long investment horizon should applaud. They can buy stocks very cheaply and hold on through any downturn," he said. "But if you're retired and need money now to live on, that demands a different approach. The key is tailoring a plan that fits your particular needs and allows you to emotionally survive periodic downturns in the stock and bond markets."

1 | 2 |