Which Investment in 2007?
Every investor wants to find the next Microsoft or Google stock to invest in. It is easier trying to catch a bolt of lightning than to pick the one dynamic stock out of hundreds offered each year.
I have always taught my clients that it is the assets class you should concentrate on not specific investments. Study after study shows 93% of your portfolio’s rate of return is due to your Investment Policy and Asset Allocation. Only 7% of your portfolio’s rate of return is due to security selection (Google, Apple etc) and market timing (when you got into the investment). So, stop trying to catch lightning bolts (or javelins) by trying to guess the next big stock, or, when to get in the market. Draft your investment policy, set your asset allocation and then rebalance as needed.
Your next question…then which asset classes should I be in? I do not know unless I have your Investment Policy.
The following chart is the Callan Periodic table of investments. It shows how various asset classes performed from the best to worst each year.
Prudence dictates you should be in multiple asset classes (see your Investment Policy). Sit with your advisor and map out which asset classes you should be in to benefit the most in 2007.
