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Burton Malkiel is a Princeton University economist, CIO of China-focused Baochuan Capital and author of A Random Walk Down Wall Street.

What advice would you give investors?

All over the world, governments are holding interest rates down to extraordinary low levels. What that means is that short-term bonds are a sure loser. For what ordinarily would have been a bond portfolio, you can use what I call an equity substitution strategy. Also, look through the world for bonds that have reasonable rates of return. For a variety of reasons, I think emerging markets are less risky than they have been in the past. Governments are running surpluses, and debt-to-GDP ratios are low. If you want to worry about defaults today, worry about Greece and Spain.

Where do you see opportunities today?

I think equities are reasonably valued everywhere. I am an indexer, so in the developed world, I would buy low-cost, broad-based indices [through mutual funds or exchange-traded funds]. But people are not diversified enough internationally, and in emerging markets in particular. Chinese stocks are particularly cheap right now. There are tremendous possibilities for India, with its young population, and Brazil is good, too. Some frontier markets in Southeast Asia ought to be in a portfolio, if you can stand the risk.

How would you invest a $100,000 windfall?

I tend to be more aggressive. It would probably be 80 per cent equities in indexed investments or funds. I might put 20 per cent in bonds – tax-exempt bonds either through mutual funds or closed-end investment companies, and emerging markets bonds, which are available through reasonably priced ETFs.

What was your best investment?

My first investment was my best. I was a finance officer in the U.S. Army in my early 20s, and I was responsible for putting into effect a computerized pay-and-accounting system with IBM machines. When I got out of the army, I had something like $5,000. I had not developed my theory about indexing yet, so I put all of it into IBM common stock, and have held it ever since. It's worth over half a million dollars now.

What was your worst investment?

In the 1960s, I did some consulting for a company called Mathematica. It didn't actually pay in cash, but in stock. It was bought by Lockheed Martin, and my Mathematica stock was exchanged for its stock. I thought I ought to diversify and sold half of my Lockheed shares. The half I retained did tremendously well. I would have a lot more money today if I had not sold it.

What keeps you awake at night?

I am really upset that our politicians do not seem to be able to deal with what I see as a looming, long-run fiscal disaster. So governments are going to keep interest rates well below the rate of inflation. They will deal with intractable government deficits by essentially taking it out on bondholders. That is financial repression.

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