The S&P 500 is up about 7.5% thus far this year. That's a good return for just over six months. Will it keep going up? Consider this. The earnings of the S&P 500 companies are expected to grow by about 5% in 2007, according to a leading Wall Street brokerage firm. That means if the market was fairly valued at the beginning of 2007 and there were no big changes as to how investors think about the market, the S&P should only go up by 5% in 2007.

There was an excellent article discussing the pros and cons of investing in Exchange Traded Funds (ETFs) in the July 3rd Wall Street Journal: As ETFs Seek Niches, Risks Rise (unfortunately, The Wall Street Journal doesn't allow us to link to their articles, perhaps that will change after Rupert Murdoch buys Dow Jones.) There's over $500 billion invested in Exchange Traded Funds and, I believe, they will either replace open-end index mutual funds or force those funds to lower their expenses.

Want to structure your mutual fund portfolio to achieve optimal returns for the next twenty years? Read on or just skip to the last paragraph.

There was a great article in the June CFA Institute publication Expected Rates of Return: Back to the Future by Jim O'Shaughnessy. Mr. O conducts solid research, writes clearly, and makes recommendations.

Bonds have higher yields then stocks. Bond funds have higher yields then stock funds. This means more current income for you. Bonds and bond funds are safer then stocks and stock funds, according to conventional wisdom. Bonds fluctuate less in value. That's good, too. So what's wrong with this picture? The interest paid on bonds doesn't grow (they're called fixed income securities for a reason), nor does their principal value.

Financial leverage is like a land mine. You might be unaware of it until it blows up. Buying stocks on margin is an obvious form of leverage (the mortgage on your home is another) and all of us understand how risky it is to buy on margin.

Simply put, leverage magnifies your gain or loss and, since you're borrowing money which must be repaid, you can lose more than your entire investment (the investment and the loan amount).

One of the mantras of mutual fund investing is to look at a fund's turnover before you buy it. The implication is that a high turnover is bad. (Turnover is the percentage of a funds holdings that are traded during a year. Funds can have a turnover greater than 100%, which means that their average holding period per investment is less than one year.

Income is hard to come by these days. Treasuries are yielding less than 5%. The bond market is in disarray, credit spreads are widening (meaning the price of existing bonds is declining) and there are serious liquidity issues (which also impact value).

Have you considered Real Estate mutual funds? Many have current yields in the 5-8% range (primarily REIT-Real Estate Investment Trust-funds).

The stock market is gyrating like a yoyo, and with each down stroke it's heading lower. What's an investor to do? Let's start by dissecting the cause-it's not as simple as a slowdown in housing or defaults in the subprime market, and these are unrelated (for the most part) events.

The housing market was headed for a correction regardless of the events taking place in the subprime market.

There's an old adage in the brokerage community that you should speculate for growth, not for income. Speculation isn't the right word, but the broker who coined it (pun intended) probably wasn't an English major (most brokers aren't).

The point is that you should take risk with investments which you expect to increase in value, i.e.

The recent events in the stock and bond markets drew everyone's attention. No doubt you took a look at your investments and, perhaps, worried about one or two. Maybe, you made some changes to your portfolio. Let's take a look at your experience and see if there are some lessons to be learned.

Did you lose sleep, literally or figuratively, over any of your investments? This is the gut check measure of risk tolerance, not quantifiable, but accurate nonetheless.