Today's tepid showing aside, these are heady times for stock investors, with a strong earnings season and temperate economic news -- i.e., the kind that typically forestalls growth-choking interest rate hikes -- propelling the market to fresh highs in seemingly sensible increments.
Sorry for the sour note there, and don't get me wrong: I realize that the market's long-term trajectory is up, and I'm about as fully invested as a guy with a mortgage and a soon-to-be-3-year-old can possibly be. Still, while I realize the market is the best place for my long-term bucks, I'm not averse to practicing a little risk management. I do have a mortgage and a soon-to-be-3-year-old, you know.
To my way of thinking, the best way to be fully invested and play effective defense is to design your portfolio with a solid asset-allocation blueprint in mind. And if at this point your portfolio resembles a postmodern architectural nightmare more than it does, say, a Frank Lloyd Wright work of art, not to worry: The best time to fix your roof -- and your portfolio -- is when the sun is shining. Five years into a solid bull run, now's a fine time to get the job done.
How to proceed?
When it comes to intelligent asset allocation, I'm a big fan of world-class mutual funds because they make it easy to invest, in a responsible way, in markets that may not be your area of expertise.
For example, you might opt to lay down a foundation of domestic-stock funds such as Vanguard 500 Index
Then, once that foundation is in place, you can look down the market's cap range toward funds that specialize in stocks that rack up far fewer financial press column inches than the bigger boys noted above. And let's not even talk about emerging markets and high-yield bonds. OK, let's do: For my money (literally), the best way to invest in those racy asset classes is through mutual funds helmed by managers who have proved that they know how to navigate potentially tricky terrain.
The Foolish bottom line
The question, of course, is: Faced with myriad (and mediocre) choices, how should choosy investors begin to build the portfolio of their dreams? For starters, I'd recommend focusing on the fund manager's track record, rather than that of the fund itself. There's nothing inherently magical about a fund, after all: It's the team that runs it you're really investing in. That team's strategy -- and whether they invest in the fund themselves -- should also be core criteria.
If you'd like to cut to the chase and see that blueprint in action (just to mix my metaphors), snag a free 30-day guest pass to Champion Funds, the Fool investing service designed to beat the market with funds. We've been doing just that for more than three years now, and all of our recommendations have made money for shareholders since we gave them the nod.
By way of a preview, in the service update that hits the streets tomorrow, we take the temperature of an ace money manager who thinks we're in the midst of a "global bubble." We also offer specific, actionable advice to help prep your portfolio for a potential pullback, zeroing in on a clutch of Grade-A funds that have fared well in up markets and downs. Click here to give Champion Funds a whirl. There's no obligation to subscribe.
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Shannon Zimmerman, lead analyst for Motley Fool Champion Funds, doesn't hold a financial position in any of the companies listed. Bank of America and Johnson & Johnson are Motley Fool Income Investor recommendations. Starbucks is a Stock Advisor pick. The Fool is investors writing for investors, and you can read all about our disclosure policy by clicking right here.