What should I invest in for 2008? What industry will thrive? What stocks or funds?

Unfortunately, we cannnot control the rate of return from publicly traded stocks or mutual funds. Also, a 30% annual return is a hefty - and unreasonable - expected return. The stock market may give a return like that perhaps one in every 10 years, but not too often. In the long run, the U.S. stock market has provided an annualized real return of around 7% (10% nominal return, if inflation is 3%), and experts are predicting the next 30 years to yield about a 4 - 5% real return. (Look up the "Gordon Equation" for more info about where this number came from).

Point is that although the market, or certain sectors of the market, or even certain individual stocks may occasionally provide a 30% annual return, it does not happen too often and predicting this is next to impossible. It is the never-ending search for the holy grail that most investors never find and end up either losing their money or paying too much in unecessary fees.

Let me quote John C. Bogle, founder of the Vanguard group: "Instead of trying to find that needle in the haystack, why not just buy the whole haystack?" What he is referring to is using a low-cost index mutual fund that purchases a broad section of the market or the entire market. An index fund is a fund that does not try to guess the upcoming hot market sectors, nor does the manager try to feverishly trade stocks to avoid losses. An index fund is a passively managed fund where the manager simply buys and holds all the stocks listed in a broad index, like the S&P 500 or the Willshire 5000 total stock market index. Such a fund will earn the market's average return, minus very small expenses. It is the only way to ensure your fair share of the market's average return.

Turns out that most mutual fund investors do not even capture the average return. Statistics show, time and again, that the average fund investor enters the hot market funds too late, and then exits them after they have already fallen considerably. (Thanks, in part, to the overhyped Morningstar Star ratings, which are useless to investors.) The average fund investor also pays too much in expenses, such that any extra gross return garnered by the fund manager will be eaten away by these excessive fees.

With almost half of the world's money in the hands of mutual fund and pension fund managers - guys and gals a lot smarter than you or I, who have resources beyond our understanding, with more than a century of market theory, with advanced college degrees, watching the markets 24 hours per day - how is anyone supposed to outsmart the crowd? As information becomes more available and more and more funds emerge, the stock markets will only become MORE efficient. The ability of one particular manager to outsmart the others will become null. Also, since fund managers are required to publish the stocks they buy, if one guy does manage to outsmart the others for a little while, the others will simply copy his holdings, thus eliminating the advantage. In an environment where information flows freely and available to the general public, combined with easy flow of money and highly liquid stocks, the market becomes very efficient and most stocks tend to trade at their "correct" values ... thus preventing the small investor from gaining an advantage over the crowd.

Consider index funds. Also consider your asset allocation: how much devoted to stocks verses bonds, and how this fits in with your time horizon and risk tolerance.

I do not know which industry will thrive. However, I am confident that U.S. business as a whole, represented by a total stock market index fund, will provide real returns over the next 20+ years.