Is your portfolio positioned for 2004?
By Randolph K. Brock
With the 2003 equity markets experiencing
their first positive returns in four years, investors finally
have a reason to applaud. But with a new year comes the
question of the market’s outlook going forward and a
reminder to rebalance your portfolio with a suitable asset
allocation strategy.
After an almost 20 percent return on the
S&P 500 and a 40 percent surge in the Nasdaq, one can
certainly make the case that the easy money has already been
made. Simply riding the wave is no longer an option. Rather it
is imperative to protect your portfolio against a possible
downturn while positioning your holdings for the best possible
returns.
Your asset allocation decisions are
critical in balancing these two needs. In fact, history has
proven that exercising a sound asset allocation strategy has a
larger impact on a portfolio’s returns than picking
individual securities.
In its simplest form, asset allocation
will offer a basic means of balancing and rebalancing your
portfolio to suit your individual investment profile and
objectives. It can also be used to help implement your
particular investment style and aid you in diversifying across
various industries or sectors.
• Balancing your portfolio to your
investor profile. Traditional asset allocation is based on
three primary asset classes: stocks, bonds, and cash. This
should depend on your outlook, timeframe, and risk tolerance.
Conservative investors, whose primary
concern is protection of principal, should generally have less
exposure to equities and a larger portion of their assets
devoted to fixed income. More aggressive investors may wish to
be more involved in stocks.
• Weighing growth vs. value. When the
market is booming, growth stocks usually outperform, but when
it’s not, value stocks tend to shine.
While you can’t predict the future,
you can allocate your assets with a suitable mix of both growth
and value in a way that properly addresses your outlook and
needs.
• Diversifying exposure across all
sectors. The old cliché “never put all your eggs
in one basket,” rings especially true with stocks; it has
become increasingly evident that it is crucial to diversify
your holdings throughout the various sectors of the economy.
Too much exposure to one area can be risky and keep you from
benefiting from positive performance in other sectors.
For example, an investor who had most of
his or her money invested in Industrials in 2003 would have
fared well through the 3rd quarter, with 17.7 percent return,
but would have missed out on participating in the even better
36.5 percent performance of the Technology sector. (2003
Performance figures through September 22, 2003.)
Many Wall Street strategists now offer
recommended weightings on sector allocations in a model
portfolio compared to the S&P 500.
This article does not constitute tax or
legal advice. Consult your tax or legal advisors before making
any tax- or legally-related investment decisions. This article
is published for general informational purposes and is not an
offer or solicitation to sell or buy any securities or
commodities. Any particular investment should be analyzed based
on its terms and risks as they relate to your circumstances and
objectives. For more information about these types of
opportunities, please write in care of Randolph K Brock, P.O.
Box 109, Jenkintown, PA 19046.
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