“It’s time for a change.” As the calendar turns to 2008, it’s more than likely that you’ve made such an assertion—whether it’s about your diet, job, or even relationships. But you might want to add your finances to the list. Now is the perfect time to perform an annual portfolio checkup to determine whether you should make any adjustments.
That’s exactly what’s on the agenda for newlyweds Lisa and Terence Dillard. Having built up their individual retirement accounts, the Atlanta couple is in the process of working with a financial planner to help meld their finances. So far, Lisa, a physician, and Terence, a high school assistant principal, have the majority of their holdings in domestic equity mutual funds. And although their portfolios include some international exposure and a stake in a healthcare mutual fund, the Dillards have yet to make a meaningful foray into areas outside of equities. In a market where subprime mortgage fears and credit concerns rule the day, it’s a step the couple may want to take. “We want to protect what we’ve gained in the market,” says Lisa, “and in a volatile market it’s important that we see where we are and how diversification can help us take the next step.”
A portfolio tune-up is a prudent measure for all investors—particularly after the 2007 market swings. For instance, the S&P 500 rose 9.5% by mid-July only to surrender almost all of those gains by mid-August. Sure, the Federal Reserve stepped in to help by cutting interest rates, but by mid-November the S&P hadn’t recovered its past gains and was up just 4.4% for the year.
So heading into 2008, step away from the commotion and take the necessary measures to fireproof your portfolio. “Investors certainly got a reminder last year that allocation of _assets outside of stocks is just as important a strategy as putting money into equity markets,” says David Braverman, a vice president for Standard & Poor’s.
It’s a strategy that institutional investors took steps to employ in 2007, and the evidence lies in the performance of investments outside of the stock market. “By August, we in the bond market saw definite signs that money was moving in a flight to quality _positions,” says Mary Pugh, president of Pugh Capital Management in Seattle (No. 13 on the be asset managers list with $1.1 billion in assets under management). Investors, meanwhile, bid up the price of gold on worries that oil prices near $100 a barrel would ignite inflation.
In uncertain times, the big money goes hunting for returns outside of the stock market because diverse asset classes, such as bonds, real estate, and gold, can cushion the blows.
Striking a Balance
Sometimes investing in other asset classes can be intimidating and, depending on the circumstances, cost prohibitive. However, things are becoming easier. In the case of bonds, programs _offered for Treasury and municipal holdings are beginning to offer _investors a more cost-effective way to get into new markets. Treasury bills and bonds can be purchased directly from the government