Q. Tired of high fees and disappointing returns, I fired my broker in 2003. I am 41 and have a taxable account at Vanguard (in addition to a 401K with my employer). I adopted a "buy and hold" strategy with the following allocation: 45 percent Total Stock Market Index, 15 percent Total Bond Index, 10 percent REIT Index, and 30 percent Tax Managed International Index. I make regular monthly investments and adjust my allocation every 6 months.

During the past year, several knowledgeable friends have told me that "buy and hold" is actually a risky strategy in these uncertain times. All of them got out of the market last year and are (allegedly) making a small but positive return on CDs. Meanwhile, I watch my portfolio drop about 9 percent during the same period. My friends have suggested that the market is not likely to improve in the next few years and that I am foolish to continue to buy and hold. I know that trying to time the market is foolish. My friends agree. They say they watch world events, pay attention to economic trends, and then decide when to get in and what sector is best.

As I continue to read dire predictions about the future of the economy in the next few years, and the uncertainty of what the retirement of the baby boomers will do to the market, I am losing confidence that I am doing the right thing with a buy and hold strategy. I would appreciate any comments. ---L.R. by email from Dallas

A. Your friends are timing the market. They are playing crystal ball. The real test of their investing ability will come when the market turns. They will probably miss the turn. And they are likely to miss far more of the upswing than you lost on the downswing. You, meanwhile, are benefiting if you continue to invest and rebalance at regular intervals.

I certainly understand how you feel about “buy and hold.” It doesn’t feel good. It reminds me of a famous quote attributed to Winston Churchill: “It has been said that democracy is the worst form of government except all the others that have been tried.”Buy and hold is the worst investment strategy--- except all the others that have been tried.

Q. I’ve recently sold my house in preparation for my wedding in October. I have no credit card debt. I have $8,000 in the bank. It would cover about 5 months of living expenses if I became unable to work. My question is: The only debt I have is a car loan at 5.5 percent, with 15 payments left. The car loan is just over $5,500. Since I have the money in the bank, should I just pay off the loan and keep saving? It is a higher percentage rate than what my $8,000 is getting. It’s always hard for me to make the “smarter” decision with these things. In addition, if I shouldn’t pay off my car loan, should I do something a little better with that $8,000? I’m able to save $1,600/month and I’ll continue to do that after getting married. ---S. O., by email from Dallas, TX

A. Keep your money in the bank and keep on making those monthly payments. While you would save some interest by paying off the loan, the amount of interest you would save is pretty small. To gain that saving you have to reduce your five months of living expense reserve to less than two months.

If you are saving $1,600 a month in addition to the car loan payment, you are building your living expense reserve at the rate of one month per month. That means your $8,000 checking account will soon be large enough to put some money in higher yield investments, such as an intermediate term bond fund. The yield on the Vanguard GNMA fund (ticker: VFIIX), for instance, is a bit over 5 percent. The minimum investment in this fund is $3,000. That’s about two months of your savings. Over the preceding 3, 5, 10, and 15 year periods this fund has consistently been in the top 10 percent of all funds that invest in intermediate term government securities.