Invest for Success in 2007 1/7/07

Resource Center Stewart's Column title

Invest for Success in 2007 1/7/07

Stewart H. Welch III, CFP, AEP
Founder, The Welch Group, LLC

Invest for Success in 2007

“Invest for Success in 2007”



2006 closed out the year with impressive returns for all the major stock indexes.  The Dow Jones Industrials broke its own record twenty-two times this past year and ended the year with a 16.3% gain.  The broad U.S. large company market as represented by the S&P 500 Index closed up 13.6% for the year.  U.S. small company stocks finished very strong with a 17% increase but the first-place ribbon goes to international stocks with their eye-popping 23.5% performance.  These returns were way beyond what the top analysts predicted and shows that even the pros can be surprised.


What should you do now to position your portfolio for success in 2007?  You don’t want to procrastinate.  Instead, commit to spend one hour reviewing and restructuring your investments for 2007.  Here is a process that you should be able to complete in under one-hour that will make sure your portfolio is balanced.


  1. Macro allocation review.  First decide how much money you want to allocate between stocks, bonds and cash.  The longer you have until retirement, the larger your allocation should be towards stocks.  For example, if you are 15-years or more away from retirement, consider allocating 70% to 100% to stocks. 
  2. Micro allocation review.  Now divide each of these broad classes into sub-classes.  For example, if you have chosen stocks to represent 60% of your overall investment allocation, you’ll need to decide how much of your stock allocation to invest in large-cap stocks verses small-cap stocks verses international stocks.  With bonds, consider how you would allocate among intermediate-long bonds verses short-term bonds and cash (money market). 
  3. Develop an Investment Policy Statement (IPS).  Once you’ve made your decisions in steps one and two, it’s important to memorialize those decisions through a written Investment Policy Statement (IPS).  Use your IPS as a guide to rebalance your portfolio now. 
  4. Periodic rebalancing.  Over time, your investments will get out of balance as the various segments of the markets change.  It is vital to your success that you bring your portfolio back into balance according to your IPS.  The process of rebalancing forces you to ‘buy low, sell high’.  We typically rebalance client portfolios once every 12 months.  Others recommend rebalancing every quarter or once a sub-asset class moves ‘out of balance’ by more than 5%.



As you think about repositioning your portfolio now, it may be helpful to reflect on what the top Wall Street strategists are saying about the prospects for 2007.  Surprisingly, most hold a very bullish view for stocks this coming year.  They point to strong corporate earnings expectations in an environment where inflation is not a threat to our economy.  This is the proverbial ‘soft landing’ that policy-makers and economists dream of.  Unfortunately, the market does have a tendency to play out in a way that makes fools of the largest number of people.  Your best defense is to have a broadly diversified strategy as defined in an Investment Policy Statement and be prepared to ride out any unexpected storms.  If you would like a sample IPS form or sample investment allocations based on lifestyle, go to the Resource Center at