Recent volatility aside, these are heady times for stock investors, with a strong earnings season providing fresh heft for a bull run that -- with occasional downturns along the way -- just might hit the five-year mark later this year.
Why "might"?
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.
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 (VFINX) -- a passively managed stalwart that counts General Electric (NYSE:GE), Citigroup (NYSE:C), and AT&T (NYSE:T) among its top holdings -- and pair it with, say, Marsico Focus (MFOCX), an actively managed -- and far more concentrated -- fund that gravitates toward growth-oriented fare like Comcast (NASDAQ:CMCSA), Las Vegas Sands (NYSE:LVS), and Schlumberger (NYSE:SLB).
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 taken together, our list of recommendations has surpassed the market's average by a double-digit margin.
By way of a preview, a recent service update takes 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. And in the update that hit the streets yesterday, we explore the flip side, profiling a trio of the fund industry's very best growth vehicles. If that kind of comprehensive investment approach sounds like your cup of tea, click here to give Champion Funds a whirl.
This article was originally published on May 8, 2007. It has been updated.
Shannon Zimmerman, lead analyst for Motley Fool Champion Funds, doesn't hold a financial position in any of the companies listed. The Fool is investors writing for investors, and you can read all about our disclosure policy by clicking right here.
