If you're like a lot of folks right now, your investment portfolio has probably been performing quite a bit better than it was this time last year. The worst thing you could do, however, is to let your success over the past year lull you into a false sense of complacency.
Unfortunately, that's not the way that many people think about their investments. It's much more common to see people have the attitude that if it isn't broken, don't fix it. In other words, there's always a temptation to stick with exactly the same strategy no matter what -- even if there's good reason to believe that changing times will make it less effective than an alternative.
2 trends you won't want to miss
That's an attitude that Foolish fund expert Amanda Kish wants to change. In her latest Motley Fool Champion Funds quarterly report -- available to subscribers of the Fool's Rule Your Retirement newsletter service -- Amanda takes a close look at what investors can do to prepare themselves for the new challenges that they'll face in 2010 and beyond.
Throughout 2009, investors benefited from one of the strongest stock market rallies in recent memory. Stocks of all sorts saw strong gains, with even the most beaten-down companies rising up from the carnage of 2008's market meltdown to post phoenix-like performance numbers. Practically all you had to do to make money last year was to stay fully invested and let the market do your work for you.
But Amanda knows that the market can't keep up that kind of pace forever. She's getting ready for the next big move the market will make. And to make her point, she's set out a number of themes she thinks will dominate the coming year -- and that you should be ready to jump on when they start happening. Let's take a look at a couple of them.
1. See the world.
If you own only U.S. stocks, you're running some big risks. Although the U.S. dollar has rebounded fairly sharply since early December, many are still concerned that the dollar's future prospects are threatened by factors ranging from the government's lack of fiscal discipline to better investment prospects abroad.
To remedy those concerns -- or at least to protect yourself from a total financial free fall if dollar doomsayers prove correct -- Amanda recommends that even the most conservative investors move a significant portion of their assets into international stocks. Yet although many foreign stock followers seem to focus single-mindedly on the hot emerging markets, the funds that Amanda recommends don't ignore the values you can find throughout the developed world. One of Amanda's picks from last year, which held stocks like Novartis (NYSE: NVS ) , GlaxoSmithKline (NYSE: GSK ) , and Nokia (NYSE: NOK ) , has already rebounded strongly from a subpar showing in 2008 to post amazing results last year.
2. Grow up.
If you look at last year's big winners, you'll notice that many of them were small stocks. Companies like Diedrich Coffee went from the smallest of the small to fairly big players in a relatively short time. And more generally, small- and mid-cap stocks outperformed their larger counterparts. The S&P Midcap 400 index, for instance, posted gains of over 37% in 2009, with stocks like Cliffs Natural Resources (NYSE: CLF ) and Pride International (NYSE: PDE ) doing exceptionally well. Mid caps beat the S&P 500 by more than 10 percentage points.
Amanda, however, doesn't see that trend lasting. Although small companies tend to do well coming out of a recession, larger stocks start to kick into high gear at some point shortly thereafter. That's why she's recommending that investors buy funds that own high-quality blue-chip stocks like Chevron (NYSE: CVX ) and 3M (NYSE: MMM ) -- companies that should fare fairly well if the recovery continues to gain speed in the coming year.
Make the change
After being rewarded for what may have been a pretty passive strategy in 2009, you might not want to mess with a winning strategy. But the bear market reminded investors that leaving your portfolio on autopilot can cost you all the hard-fought gains you've earned over the years. Instead of letting that happen again, take a couple of simple steps to preserve your profits. You'll be glad you did.