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Wake up and get diversified

The recent market decline is very much similar to last May’s market correction where interest rate and inflation was a major concern.  Last May, the market basically misread the economic indicators and thought the FOMC was going to cut interest rate.  Instead, they kept tightening.  The result was a major sell-off that lasted thru the summer of 2006.  In hindsight that would have been a great time to buy the beaten down stocks.  Perhaps this is a similar situation and might turn out to be a knee jerk reation.  On the other hand, this could also be just the beginning of more pains to come.  Whatever the case may be, this should serve as a wake-up call.

 

Since September of 2006 the stock market has been on an ascent.  There has not been a sell-off of this magnitude.  Thus, a lot of investors have taken the market for granted as we expected the market to keep going up.  Some of us even got a little complacent and probably never taken any profit.  This sell-off should once again remind us that achieving a superior rate of return in the market is never easy.

 

The days where we can pick a stock, sit back and let it ride is over.  It is about to get more challenging to pick the winners moving forward.  Just as important as picking the winners, keeping away from the potential losers is probably more important.  Investor’s overall expectations must be lowered from here on.  It is improbable to expect the same rate of return as we have enjoyed.

 

Now is the time to go through our portfolio to ensure we are diversified.  Perhaps also consider reallocating some positions.  This sometime means taking a lost and moving on. Protecting our money should be the primary goal. Therefore, do not make the mistake of being heavily invested a single sector. The following is sample of a diversified portfolio for these uncertain times:

 

Cash:  15 %

Mutual Funds:  15%

Bonds:  10 %

Stocks-Technology sector: 10%

Stocks-Energy: 10 %

Stocks-Retail: 10%

Stocks-Housing: 10%

Stocks-Food: 5%

Stocks-Drugs: 10%

Stocks-Automotive: 5%

 

In a volatile market, keeping larger than normal cash position is a good idea.  There is nothing more liquid than cash. Normally we would not touch bonds, but it does offer some protection during a bear market. We believed by spreading our stock investments across these sectors should help protect our portfolio and hopefully achieve a small to modest return during a bad market.

Disclaimer: The opinions and reports at iBooyah.com should be validated before taking any investment action. We are not responsible for the completeness or quality of the information. While we attempt conduct thorough research, there are no guarantees in accuracy. iBooyah.com is not liable for any damage caused by the use of any information provided, including information which may be incomplete or incorrect. All materials presented within is not to be regarded as investment advice or recommendations, but for general informational purposes only. We will take no responsibility if you trade based on the information in this site. Past return is no guarantee of future result, trade at your own risk.

Posted by ibooyah on March 2, 2007 12:26 AM |

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