Though the market has moved in fits and starts through most of the past few months, its trajectory has, alas, been downward. That's also probably true -- I'm just making a wild guess here -- of your own portfolio. If so, not to worry: There are steps you can take to patch it up and make it a smarter vehicle for your long-term savings. And if not, well, the best time to fix your roof, as they say, is when the sun is shining.
1. Get diversified.
Diversification gets a bad rap in some quarters, with otherwise savvy types thinking it necessarily leads to watered-down returns. My take? Think again. True, if you have a nest egg that's virtually uncrackable, methodically spreading your bets across the market's various cap ranges and sectors may not sound all that exciting.
For the rest of us, however -- which is no doubt the vast majority of us -- doing precisely that just makes plain, old-fashioned common sense. The market really does move in cycles, after all. And while it sometimes takes them forever to do it, investors eventually head toward those areas of the market that sport the most attractive valuations.
Your best bet? Be there before the "smart" money arrives -- which is precisely what constructing a well-diversified portfolio allows you to do.
2. Get ready.
Speaking of "smart" money, I've got a hunch it'll be in hot pursuit of large-cap-growth fare in the not-so-distant future. And needless to say (I hope!), that hunch isn't based on any kind of crystal-ball gazing, either.
Rather, large-cap-growth is one of the market's most unloved areas. Among the various categories that fund researcher Morningstar tracks, for example, few have fared worse than "large-growth" over the last five years. And it follows, of course, that there are bargains aplenty to be had at the level of individual equities, too.
The likes of UnitedHealth (NYSE:UNH), Taiwan Semiconductor (NYSE:TSM), and Best Buy (NYSE:BBY) trade with price-to-earnings ratios (P/E) that clock in below those of industry peers and at prices more than 20% below their respective 52-week highs. Chip-making stalwart Intel (NASDAQ:INTC) sports a discounted P/E, too, and a stock price more than 30% below its annual high.
Blue light specials, anyone?
3. Get smart.
Still, while now might be a good time to tilt your portfolio in the direction of large-cap-growth stocks, I certainly don't recommend falling headlong into them. Focus instead on designing a portfolio that provides carefully calibrated exposure to the market based on your timeline and tolerance for risk.
Got decades of investing ahead of you before hitting retirement? Consider "overweighting" smaller-cap stocks and perhaps international fare as well. Closer to or perhaps already in retirement? Bonds should grab a bigger slice of your investment pie, while your equity holdings should mainly comprise buttoned-down overachievers such as ExxonMobil (NYSE:XOM), Citigroup (NYSE:C), and Countrywide Financial (NYSE:CFC), steady Eddies with 10-year track records that shellac the S&P's.
Fund your future
Each of the above steps can go a long way toward improving your portfolio, and if you want to be really smart about it (and you know you do, Fool), well-chosen mutual funds can help you get the job done with little in the way of muss and virtually no fuss. Once a foundation of world-class funds is in place, in fact, adding individual stocks to your portfolio becomes a much less risky proposition.
Not just any fund will do, of course, which is why the Fool launched Champion Funds back in March 2004. Since then our recommendations have bested the market by nearly nine percentage points, and our model portfolios are beating their benchmarks, too.
Interested? Good deal. A free 30-day guest pass to the service is yours for the clicking. Your pass provides access to all our recommendations, back issues, and members-only discussion boards, too. There's no obligation to stick around if you find it's not for you, so there's no need to wait: The time to get smart is now!
At the time of publication, Shannon Zimmerman didn't own any of the securities mentioned above. Intel and UnitedHealth are Inside Value recommendations. UnitedHealth and Best Buy are Stock Advisor recommendations. You can check out the Fool's strict disclosure policy by clicking right here.
