This week’s Mutual Fund and ETF stories «

    This week’s Mutual Fund and ETF stories

    Stocks shot out the lights in 2013, and now there’s a good chance your investment portfolio holds a higher percentage of stocks than you intended, while the amount in bonds, real estate and other assets is proportionately less. Maybe this is no big deal because stocks have been going up.

    Don’t kid yourself.

    Smart investors diversify investment risk. Portfolio diversification is important always, but especially after a year when U.S. stocks soared 30%-plus. If you’re following a deliberate, allocated plan, last year’s stellar share-price gains have thrown a wrench in the works. The right move now, from a big-picture perspective, is to trim stocks back to your allocated range — made with regard to your risk tolerance — and add to other, lesser-performing assets.

    Instead, all too often in a bull market like this, people decide they can stand the heat after all. So they wipe their brow and stay in the kitchen. But that’s not tolerance, it’s complacency — and a recipe to get yourself cooked if you’re not careful.

    Folks who confuse brains with a bull market help Wall Street captains pay for their yachts. Complacency is the investing public’s Enemy No. 1. So go where the money isn’t. Don’t expect 2014 to be as good a year for U.S. stocks as 2013 was. Buy into last year’s laggards. Make sure your enthusiasm for any asset class doesn’t exceed your limits — and gloss over your limitations.

    Remember what Warren Buffett wrote in his 1987 Berkshire Hathaway shareholder letter: “As they say in poker, ‘If you’ve been in the game 30 minutes and you don’t know who the patsy is, you’re the patsy.’”