INSIDE FINANCE
Should Auld Portfolios Be Forgot?

By Robert M. Jaffe, MBA, AAMS
December 30, 2005

As we ring out the old and ring in the New Year, it's time to raise a toast to things past and those to come, including a review of your portfolio. So, replace the Champagne flute with your December 31 statement (it will arrive soon) and take a hard look at your asset allocation with the same care as you hung the stockings by the chimney.

For example, continued rising interest rates have curtailed, to a degree, the desirability of long-term and high yield bonds. Nevertheless, fixed-income securities act as a cushion against the volatility of stocks, so it's important to determine whether lowering the percentage of bonds in your portfolio is appropriate.

The stronger dollar has lessened the return on non-US investments, yet a component of some foreign stocks and bonds also helps to diversify and bolster what has been a flat year for US stocks. Emerging markets investments have certainly done well for the past three years, yet there is always the specter of political and economic unrest in these markets. The "China syndrome" has been the center of attraction for some time, and yet according to Jeremy Siegel, renowned professor of finance at the Wharton School at the University of Pennsylvania, "Since 1992, China has had the fastest economic growth and the worst stock-market returns." (The Wall Street Journal 11/12/2005).

REITS, Real Estate Investment Trusts, have also performed very well. However, the market has softened and there are more than whispers about a "housing market bubble." Whether now is the time to turn away from this sector is questionable, but I would caution against overweighting in this area.

Large cap or small cap, growth or value….that is the question. My answer is to invest in some of each, preferably on a market neutral basis.

So when the Champagne has gone flat, your portfolio needn't. Same questions to ask again and again…has my life or future goals changed to make me rethink my strategy? Am I on track with where I have planned to be at this stage?

What I recommend to clients is a review of these and more specific questions in light of their current investment program. Then we design a long-run, but not set in stone, strategy that will enable them to determine what the probability of succeeding in attaining their objectives will be.

So take a hard look as the New Year dawns and meet with your advisor to determine how your portfolio may need to be retuned. This is a resolution you should keep.

Wishing you a happy, healthy and prosperous 2006!

Please Email bob@cfsias.com with your questions.

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INSIDE FINANCE will appear regularly, addressing financial matters of interest to our readers. Any questions? Email bob@cfsias.com

Registered Representative, Securities offered through Cambridge Investment Research, Inc., a Broker/Dealer, Member NASD/SIPC. Cambridge and CFS are not affiliated.

The preceding article is for informational purposes only and should not be used as the primary basis for an investment decision. Indices mentioned are unmanaged and cannot be invested into directly. Past performance does not guarantee future results. All examples given are hypothetical and do not reflect actual investments. The views expressed in this article are those of the author and are not necessarily those of Cambridge. Bob Jaffe is Managing Director of CFS Investment Advisory Services, LLC in Totowa and has been a Clifton resident since 1984. Active in community affairs, Bob is Past Board Chairman of the North Jersey Regional Chamber of Commerce and a member of its foundation board. He serves as a commissioner on the Clifton Rent Leveling Board and the Committee for Individuals with Disabilities. He is Vice President of the Clifton Rotary Club. Representatives of Cambridge do not offer tax or legal advice. Consult a professional for your personal situation.