Monday, December 29, 2008

The Urge to Change

In recent days I have been getting antsy about our portfolio. I feel the urge to do something, I am not exactly sure what, but something to improve the overall safety and performance of our investments. Unfortunately (or actually fortunately), I know that there is very little a smart investor can do in this market turmoil other than stick to tried and true investment principles that will ultimately bring success: diversification, cost minimization and regular, disciplined investments and savings.

Maybe it's because my company is shut down for the holidays and I have more time on my hands than I am used to. Maybe it's because I have been spending some of that extra time reading the Wall Street Journal and other business papers. There is so much advice out there: stocks to buy, stocks to avoid, predictions of doom, predictions of a quick stock market rebound... there is a ton of advice out there and much of it is conflicting. It's just not useful.

My assessment of the economic situation is that things are pretty gloomy. The news is pretty much all bad, and while stocks dropped a precipitous 40 some percent over the past year, there is nothing that says that they can't go down further. Having said this, I believe that we are within 10% to 20% of a market bottom, and market timing is simply not something that I believe in. With that in mind, we will continue our regular, monthly contributions to our stock portfolio, and as always those investments will be in the form of index funds. Buy and hold for the long term, will continue to be the strategy.

Having said all this, there are a couple of diversification moves that I have been entertaining. One is something that I have been thinking about for a long time: build a small diversifying position in commodities (I am thinking 5% to 10% of the portfolio). Commodities have taken a major hit in recent months, and this may be a good time to make such a move. The other move I have been entertaining is diversifying into foreign currency denominated investments. I don't know about you, but the massive borrowing that the federal government has undertaken makes me nervous. In the coming years, I will not be surprised to see the value of the Dollar slide and tumble and erode the purchasing power of our savings. E*trade, where we keep our portfolio offers the option of opening an investment account denominated in Euros or other major currencies. This is something I will continue to think about and research and I will keep you guys updated.

In the mean time, I think that a good way to handle the situation is what a wise man once said: "Don't just do something, sit there"...

Enjoyed this post? Please consider subscribing to Money and Such by free RSS Feed or by email.

No comments: