Based on what I see as the future of the US dollar, gold and Canadian dollars are much better bets.

One easy method is to use the ten month moving average for your buy/sell signal. Review your positions on the first day of each month. If it is above the 10 month average buy it. If it is below the 10 month average sell it.

Always diversify across investment type and styles.
A few to consider:

SPY – S&P 500
LQD – Investment grade Corp bonds
JNK – Junk bonds.
XLE – Energy
IYR – Real Estate
FGB – Business Development Companies
EEM – Emerging Markets
DBA – Multi Sector Commodities
IGE – Natural resources
AMJ – Master Limited Partnerships
DBV – Currency Harvest fund
GLD – Gold

BTW, you might also like these two:
IVE – S&P Value
IJS – Small cap Value

You can find more ETFs here:
http://finance.yahoo.com/etf/browser/mkt?c=0&k=5&f=19&o=d&cs=1&ce=152

Don’t make it hard. Depending on how much money you have, start with the SPY and add to other sectors and classes.

Here is an easy to use charting site. Just set it to monthly. Add the 10 month simple moving average feature and enter your ticker.
http://bigcharts.marketwatch.com/advchart/frames/frames.asp?symb=spy&time=8&freq=1

Rajiv Sethi is a Professor of Economics at Barnard College, Columbia University. Here is what he writes in an update to a blog entry entitled “The Invincible Market Hypothesis”:

“In a comment on the post (and also here), Rob Bennett makes the claim that market timing based on aggregate P/E ratios can be a far more effective strategy than passive investing over long horizons (ten years or more.) I am not in a position to evaluate this claim empirically but it is consistent with Shiller’s analysis and I can see how it could be true.”

http://rajivsethi.blogspot.com/2010/02/invincible-markets-hypothesis.html

Rob

Oh, my!

That said, some sort of tactical shift–that is, shifting my allocation by 10% in favor of or against stocks depending on valuation–is a different matter and maybe something I could maintain (and will address in a different post).

I look forward to the post, Pop.

Our difference is that I think of valuation shifts as strategic rather than tactical. IndexUniverse.com had an interview with John Bogle this Summer in which this particular aspect of the question came up in an intriguing way. Bogle started to say what you are saying here — that occasional tactical allocation changes based on valuations are okay. Then he stopped himself and said “Oh, I should say strategic, not tactical!” (that’s a paraphrase, not a quote).

That floored me because I have been arguing for years now that these shifts need to be strategic rather than tactical. An investor making a tactical shift in 1996 (when valuations first went to insanely high levels) would have lost out because we did not see a crash for another 12 years; he would have given up on his tactical move before it had time to pay off. An investor making a strategic shift in 1996 (a shift made because he wanted to keep his risk level roughly constant, not because he thought he knew where the market was headed in the next year or two) would be ahead today.

The entire historical record shows that tactical shifts never work (except by pure chance) and that strategic shifts always work (if implemented in a reasoned and moderate way). So I think this distinction is a big deal. I think that if people could come to understand the difference between tactical and strategic shifts, much of the confusion and friction we see evidence itself in discussions of this topic would dissipate.

The short-term future is unknown. So tactical shifts are really just rooted in guesses (they might work out, but there is no particular reason to believe they will). The long-term future is known (not perfectly, but to a statistically significant degree). So strategic shifts are certain to work sooner or later (so long as they are implemented in a reasoned and moderate way). Even in cases in which they don’t yield higher returns (they usually do), they help the investor stick to his strategic plan (part of which is the risk level he has chosen for himself). The only way in which strategic shifts could be a bad idea (in my view!) is if we live in a world in which the riskiness of stocks does not increase with increases in valuations (this is the world of the Efficient Market Theory, which I view as having been discredited by the academic research of the past 30 years).

The focus of the argument you make in the blog entry is on investor emotions and on implementation questions. These are legitimate points. The greatest theory in the world doesn’t work if it is not implemented properly. You are questioning whether it is possible to implement valuation shifts properly. I think it is possible but I also think that the point being made is a perfectly reasonable one. I wish that we saw more discussion of it. My view is that we will see more discussion of it when we get to a point where there is a consensus that there is enough merit to the idea of making allocation shifts in response to valuation changes that the idea is not dismissed without even it even being given consideration by a dogmatic claim that “timing doesn’t work.”

That’s the entire question in dispute — Are strategic shifts based on valuation changes a different form of timing, a form of timing that actually works?

My hope here is that there are some listening in who believe regardless of where they come down on these questions that you have “baited” a good discussion for all of us.

Rob