Introduction

As you may know, I follow investment developments quite carefully. I actually have been doing so for the last 14 years. I follow overall trends rather than trying to make sense out of individual stocks. By keeping track of these trends, my own investments have increased in value greatly as have those of several relatives I have made suggestions to. So, I thought I might try using my knowledge to make suggestions to a few other people as well.

If you know of anyone else who might be interested, feel free to pass this on to them as well.

Timely Suggestions

Here are some timely suggestions for today's investment climate, that is, as of this date (May 13, 1999)

For new investments (eg investments/allocations you will be making in the near future):

See "Comments" shortly for more details.

For investments already in place, a reasonable asset allocation might suggest a portfolio consisting of 60% or more in stocks, 30% (or less) in bonds, and 10% in cash or other investments.

Comments on Stock Investments

For the last several years, being well diversified hasn't paid off. Merely owning large US growth stocks has beaten almost all other categories of investments. Owning small/mid cap stocks, value stocks, and foreign stocks has only served as a drag on returns.

Recent results, within the last few months especially, suggest that this pattern has started to change. For many funds in these underperforming categories, their returns have started to surpass those in the big cap growth category. This turnaround suggests we are at the beginning of a period of extended outperformance by these up to recently badly performing investment categories. Therefore, if you own almost exclusively funds/stocks such as an S & P 500 index fund or large growth-oriented funds/stocks such as for example Magellan, you should consider re-balancing your portfolio so that the stock portion of your portfolio has roughly the following suggested characteristics:

Suggestion for Growth vs Value allocation:

Suggestion for US vs Foreign allocation:

Comments on Bonds

Many people choose to avoid bonds altogether. If so, you might choose to skip this information. However, see "Final Comment" below.

The present economic climate does not favor bonds at this time. Interest rates have been rising gradually since last fall and I expect this trend will continue, hurting returns.

If you regularly allocate some new money to bonds, I would lower the current allocation.

For money already invested in bonds, you might reduce your current balance somewhat. However, I would not sell bonds in very large amounts since higher rates can eventually lead to better returns once a peak in interest rates is reached. I would think that bonds will be a more attractive investment when long-term rates move up in the area of at least 6.25%.

Final Comment

If long-term interest rates continue to move up to around 6.25 to 6.50 before too long, this will not only tend to hurt bonds, but also most likely stocks as well. Those stocks that have advanced so much in the past few years, that is, mainly large growth stocks, have the most to lose if this happens. Owning a mixture of big and small stocks, value and growth stocks, and foreign as well as US stocks should prove to be much more advantageous than it has been in the last few years.

If there is a stock market correction, you should not expect any category of stock investments to show positive performance. However, looking out over the next year or two, the above mentioned underperformers seem like much better choices to catch up to and likely surpass the current high fliers.