Q. It seems reasonable to me that 401(k) plans and other private retirement and annuity funds would create a tremendous "buy" pressure in the stock market. Say that 10 million people have $1,000 transferred on the first of every month from their paychecks into such investment funds. That would be $10 billion in new money going into the stock market at the beginning over every month. So why isn't there a big surge in stock prices during the first few days of every month and why don't these stock-buying plans result in a perpetual upward trend in the stock market?

---M.J., Austin, TX


A. You've got the right idea, but the impacts aren't as clear. Let me explain why. First, although new money is sent in every month, it's spread throughout the month so there is no single day that dominates.

Second, although money goes into investment vehicles, it doesn't all go into a single investment vehicle all the time. We put an increasing portion of our new savings into equities over the last ten years but there were significant changes from month to month.

The Hewitt 401k Index, an indicator that tracks investment choices in a broad list of large 401k plans, shows that employees transferred money into bond funds, stable value funds, and money market funds in August but moved money out of all kinds of equity funds at the same time. They did the same thing in July. Hewitt is one of the largest employee benefits consulting firms: I suggest a visit to the 401(k) Index portion of their website: http://was.hewitt.com/hewitt/services/401k/index.htm.

You can get an even broader measure of investment choices by visiting the Investment Company Institute website (www.ici.org) and checking their monthly cash flow figures. The figures for July (August figures will be posted at the end of September.) show a record $52.6 billion dollar out-flow from equities. In percentage of assets terms July ranked second to the outflow that occurred in October 1987, the last big crash.

We should all be concerned about whether the current wave of redemptions is short term or long term. After the 73-74 crash, equity mutual funds were in net redemption until the early eighties. Needless to say, a long period of redemptions could be a major impediment to a stock market recovery.

Institutions have been known to do the same thing--- make massive moves in or out of a particular asset. In 1971, for instance, 122 percent of all new pension fund cash flow went into equities. This means pension funds sold bonds to buy stocks. This helped create the famed "Nifty Fifty" market that was similar to the bubble of overvaluation that is now ending.

Finally, while it is easy to see the flows of money into stocks and bonds, the flow out is more difficult to identify. Every day there is a non-investment reason for some individuals or some institutions to sell one asset or another. This is a constant pressure. That downward pressure is why, in lieu of sustained buying, stocks often drift downward in price. There is a constant need for new investment cash to sustain stock prices.


Q. I want a Couch Potato portfolio that makes money 3 out of 4 weeks, 5 out of 6 months, and EVERY year. Will 90 percent in Vanguard's Total Bond Market Index and 10 percent in Vanguard's Total Stock Market Index do it? I'm willing to forgo the double-digit returns the investment brokers talk about.

---B.T., Waite Parke, MN


A. Sorry, it's really difficult to avoid ever losing money. In 1994 the Vanguard Total Stock Market Index fund suffered a loss of 0.17 percent and the Vanguard Total Bond Market Index lost 2.65 percent. That makes a portfolio loss of 2.40 percent if you were 90 percent invested in bonds.

This doesn't happen very often. It just happens that 1994 was the worst year for bonds in history--- but you said "ever."

Readers who want a guaranteed portfolio would do better by thinking about investing in money market funds and both regular and iSavings bonds. These never decline in value. It would also be good to think about your equity investment as something completely separate that is only considered on a rolling five or ten year basis. According to Ibbotson Associates, large company stocks have provided negative returns in only 6 of the 72 five year investment periods between 1926 and the end of 2001. Lengthen the investment period to ten years and the number of negative returns drops to only 2 of 67 periods. There were no 15-year periods with negative returns.