Should investors switch from bonds to shares?

Savers have preferred bonds to shares for the past seven months. But those saving for long-term goals such as retirement should remember that equities, unlike bonds, can offer a growing income.

http://www.telegraph.co.uk/finance/personalfinance/investing/9290399/Should-investors-switch-from-bonds-to-shares.html

How To Improve Your Value Investing Returns

Do you really have the courage of your own convictions?

If you're a value investor, how concentrated is your portfolio? And how concentrated do you think it should be?

This is a tough call. The more concentrated, the riskier, but the better your potential returns, of course.

It all depends how and where you're finding that value and how conspicuous it is. If you found during last year's slump, for example, that you lost a huge percentage of your wealth on paper, then you may be too concentrated. The receding tide took almost all boats with it. Then again, if you had the courage of your value convictions and had done all the research you possibly could, perhaps this was an averaging down opportunity?

As Warren Buffett has said: "Unless you can watch your stock holding decline by 50% without becoming panic-stricken, you should not be in the stock market." And as his partner Charlie Munger says, proper allocation of capital is an investor's number one job.

Decide what is right for you

So it's important to get share allocation right in the first place -- and at a level that is right for you.

I've looked before at whether there's a correct number of stocks to own, which also spawned a useful debate; each to his own here. No-one else can really make this decision for you. But if you're too diversified, you're unlikely to beat the market.

Warren Buffett's value investing mentor, Ben Graham, wrote of a portfolio strategy with a mixture of shares and bonds with a maximum of 75% shares and 25% bonds when share prices are low and demonstrating good value -- and vice-versa (25% shares, 75% bonds) when share prices are high.

Often, investors not sufficiently diversified and overly confident in the good times suffer scary losses in the bad and are unable to take advantage of buying opportunities due to insufficient funds.

The problem is made worse by the inherent psychological tendency many investors are shown to have of being too quick to take small profits and to run with the herd. Whereas, with true value stocks (profitable companies with solid assets and cash, priced well below price to tangible book value) you certainly don't want to be a forced seller. Instead, the opposite is true; you want to be able to take advantage of generalised market sentiment taking the price illogically lower.

Of course, it may well be that there has been news that shifts a company's intrinsic value, which then needs to be reassessed. If the margin of safety is no longer sufficient, then it may have to be sold at a loss; not all value shares come good, and this is a vital consideration.

Improving your value returns

I was interested to read a paper on value investing by Schroder from last November (a PDF). It makes for fascinating reading and demonstrates what value investors already know to be true.

Here are a few brief insights:

• What you pay, not the growth you get, is the biggest driver of whether you make money.
• Focus on exploiting what we CAN know (valuation) and not what we CAN'T (the macro).
• Focus on areas that offer compelling value -- the greatest driver of long-term returns.
• Being different is usually uncomfortable but often profitable.
• Understanding balance sheet risk and income growth is as important as a high yield.

Interestingly, as an aside, the paper also looks at contrarian sectors offering best value from last September, with Homebuilders, Insurance and Banks seeming to offer the best opportunities.

Andrew Tobias advised (as paraphrased by Peter Lynch): "Don't put all your eggs in one basket. It may have a hole in it." Instead, Lynch urges private investors not to rely on a fixed number of stocks, but to investigate how good they are on a case-by-case basis. He goes on to advise us: "In small portfolios, I'd be comfortable owning between three and ten stocks." Of course, he was more interested in earnings growth than out and out value.

The bottom line for me is that a value portfolio should be concentrated into a few well-researched shares, but not at the cost of too much risk, as I like to sleep at night.

http://www.fool.co.uk/news/investing/2012/04/04/how-to-improve-your-value-investing-returns.aspx?source=ufwflwlnk0000001

Top 10 Things to Do Before You Invest

Top 10 Things to Do Before You Invest
by Michele Cagan, CPA

1. Pay off every penny of credit card debt. You'll earn sky-high (18 to 22 percent!) returns just by paying your credit card balance in full rather than making the minimum monthly interest-laden payments.

2. Build yourself an emergency fund. Start a separate bank account for this purpose alone. It should have enough money to cover at least three to six months of living expenses.

3. Set up and follow a household budget. Keep track of where your money comes from and (even more important) where it's going.

4. Set clear financial goals. Whether you want to save for a new car this year or retirement twenty years from now, you need to know why you're investing.

5. Determine your time frame. How long your money will be working for you plays a key role in designing the best portfolio.

6. Know your risk tolerance. Investing can bring about as many downs as ups, and you have to know just how much uncertainty you can comfortably stand.

7. Figure out your asset allocation mix. Before you start investing, know what proportion of your portfolio will be dedicated to each asset class (like stocks, bonds, and cash, for example).

8. Improve your understanding of the markets. That includes learning about the big picture, such as the global political and economic forces that drive the markets and affect asset prices.

9. Set up your brokerage account. Whether you decide to start out with a financial advisor or take a more do-it-yourself approach, you'll need to have an open brokerage account before you can make your first trade.

10. Analyze every investment before you buy it. Buy only investments that you have researched and fully understand; never risk your money on an unknown.

http://www.netplaces.com/investing/planning-for-success/top-ten-things-to-do-before-you-invest-1.htm

Exodus as investors see no equity in equities (Australia)

Exodus as investors see no equity in equities
Gareth Hutchens
December 20, 2011

 

INVESTORS continue to pull their money out of the stockmarket at record rates, ploughing their savings into term deposits in an attempt to escape the turmoil on global markets.

Australian term deposits have swelled by $276 billion since July 2007, growing at an annualised rate of 22.3 per cent.

The local equity market, which was worth $1.4 trillion in mid-2007, lost about $243 billion over the same period. It is now worth about $1.157 trillion.
 (1 trillion = 1 million x 1 million)

Advertisement: Story continues below

Saving for winter: There has been an 'almighty switch' from equities to term deposits.

Charlie Aitken, managing director at Bell Potter Securities, said there has been an ''almighty switch'' from equities to term deposits.

''It appears Australians approaching retirement simply want out of any form of ''volatile'' asset class, even if that means accepting diminishing unfranked yields in the term deposit market,'' Mr Aitken said. ''Cash rates falling sharply in the form of term deposit rates hasn't slowed the capital flow into those unfranked term deposits.''

At the peak of the market in July 2007, the term deposit market was worth $207 billion. That figure has since grown to $438 billion.

Meanwhile, the return on the local equity market declined by 4.4 per cent a year over the same period.

''We all know it, but it's got to the point now where equity yield, when you include the franking credits, commands a record premium in my lifetime to unfranked one-year term deposit rates,'' he added.

Mark Todd, a director at FIIG Securities, said investors were less likely to believe claims that there was value in equity markets. ''Investors wants less volatility and consistent returns,'' he said.

''We're seeing real growth in term deposits and fixed-income assets as people get more familiar with the concept of credit … We've seen this since the global financial crisis, when people took long-term views in the middle of the crisis. The rates they could get from the banks were good so they took two and three-year term deposits. This is just an evolution of that experience. They're familiar with consistent returns.''

Read more: http://www.theage.com.au/money/investing/exodus-as-investors-see-no-equity-in-equities-20111220-1p3ec.html#ixzz1h4fbVcEf

Lessons from a Secret Multi-Millionaire: How Anne Scheiber Amassed $22 Million From Her Apartment

By Joshua Kennon, About.com Guide

In the mid 1940’s, Anne Scheiber retired from the IRS where she worked as an auditor. Using a $5,000 lump sum she had saved, and a pension of roughly $3,150, over the next 50+ years, she built a fortune from her tiny New York apartment that exceeded $22,000,000 upon her death in 1995 when she left the funds to Yeshiva University for a scholarship designed to help support deserving women. Here are some of the lessons we can learn from this ordinary woman that achieved extraordinary wealth.

1. Do your own research

Sheiber was burnt by brokers during the 1930’s so she resolved to never rely on anyone for her own financial future. Using her experience with the Internal Revenue Service, she analyzed stocks, bonds, and other assets. The result: She owned only companies with which she was comfortable. When markets collapse, one of the best ways to stay the course and maintain your investment program is to know why you own a stock, how much you think it is worth, and if the market is undervaluing it in your opinion.

2. Buy shares of excellent companies

When you’re really in this for the long-haul, you want to own excellent businesses that have durable competitive advantages, generate lots of cash, high returns on capital, have owner-oriented management, and strong balance sheets. Think about everything that has changed in the past one hundred years! We went from horse and buggies to cars to space travel, the Internet, nuclear knowledge, and a whole lot more. Yet, people still drink Coca-Cola. They still shave with Gillette razors. They still chew Wrigley gum. They still buy Johnson & Johnson products.

3. Reinvest your dividends

One of the biggest flaws with both professional and amateur investors is that they focus on changes in market capitalization or share price only. With most mature, stable companies, a substantial part of the profits are returned to shareholders in the form of cash dividends. That means you cannot measure the ultimate wealth created for investors by looking at increases in the stock price.

Famed finance professor Jeremy Siegel called reinvested dividends the “bear market protector” and “return accelerator” as they allow you to buy more shares of the company when markets crash. Over time, this drastically increases the equity you own in the company and the dividends you receive as those shares pay dividends; it’s a virtuous cycle. In most cases, the fees or costs for reinvesting dividends are either free or a nominal few dollars. This means that more of your return goes to compounding and less to frictional expenses.

4. Don’t be afraid of asset allocation

According to some sources, Anne Scheiber died with 60% of her money invested in stocks, 30% in bonds, and 10% in cash. For those of you who are unfamiliar with the concept of asset allocation, the basic idea is that it is wise for non-professional investors to keep their money divided between different types of securities such as stocks, bonds, mutual funds, international, cash, and real estate. The premise is that changes in one market won’t ripple through your entire net worth.

5. Add to your investments regularly

Regular saving and investing is important because it allows you to pick up additional stocks that fit your criteria. In addition to the first investment Scheiber made, she regularly contributed to her portfolio from the small pension she received.

6. Let your money compound uninterrupted for a very long time

Probably the biggest reason Anne Scheiber was able to amass such as substantial fortune was that she allowed the money to compound for of half a century. No, that doesn’t mean you have to live the life of a monk or deny yourself the things you want. What it means is that you learn to let your money work for you instead of constantly striving to scrape by, barely meeting expenses and maintaining your standard of living.




To learn about the power of compounding, read Pay for Retirement with a Cup of Coffee and an Egg McMuffin. With only small amounts, time can turn even the smallest sums into princely treasures.

http://beginnersinvest.about.com/od/investorsmoneymanagers/a/Anne_Scheiber.htm

44% of people plan to never invest again

JUNE 6, 2011 · 

A recent survey shows that 44% of people plan to never invest money in the stock market again.

“Prudential, which polled more than 1,000 investors between the ages of 35 and 70 online earlier this year, found that 58% of those surveyed have lost faith in the stock market. Even more alarming, 44% said they plan to never invest in stocks. Ever.”

Think about that for a minute.

That decision is not the well-reasoned response of someone who has carefully evaluated the risk and reward ratio of investing.

It is an emotional response born out of fear (“I don’t want to lose my money!!!”) and ignorance (“this stock market is a crock!”).

Here are a few notes to consider:

• Perhaps the worst financial move you could make would be to withdraw from the stock market. These are some of the same people who will complain about money their entire lives, never stopping to realize that their own behavior — decades prior — caused their financial situation
• If you’re truly risk-averse, you have other options to mitigate risk, such as investing in lower-risk investments or changing your contribution rates. However, this assumes you are rational and will “understand” the options. The truth, of course, is that discontinuing investments is anything but rational.
• I don’t only blame these people, by the way. Although we are responsible for our own actions, the financial education in this country has failed us.
• Ironically, as the Wall Street Journal notes, “It looks as though many of the retail investors now getting back into stocks are the same people who bailed from the market just before the start of a historic bull run.” What’s the takeaway? You will never be able to time the market accurately over the long term. This is where some crackpot commenter will say, “DUH RAMIT, I SAW THE HOUSING CRASH COMING A MILE AWAY AND PUT ALL MY MONEY IN RED BRICKS!! NOW IT’S SAFE!! HA HA AHAAHAHA.” You may get lucky with timing once. But eventually, you will lose
• If you’re in your 20′s and 30′s, your time horizon allows you to withstand temporary downturns and still come out ahead by retirement age
• The idea that “I don’t want to lose my money” ignores the fact that by not investing, you will also lose money — it will just be an invisible loss that will only be realized decades later
• Older people who lost everything in the stock market should never have been in that position — their asset allocation failed them
• The investment strategy for the vast majority of individual investors should be passive, buy-and-hold investing. There’s no need to obsessively monitor investments or day-trade. I check my investments every 6-12 months as I have better things to do than micro-monitor these numbers.
• Target-date funds make sure your asset allocation is always age-appropriate with little/no effort from you. It is one of the finest automation strategies in life.

If you’re curious how to set up an automatic investing plan — including which investing accounts I use and how I chose my asset allocation — pick up a copy of my book. Here’s the print version and Kindle version.

Results from the book:

“Thanks for the advice. Have been able to build 25k in a roth, 7k in a 401k, automate all my finances and live a bliss life thanks to your book.”
–Adrian S.

“Since I bought your book, I’ve cleared five thousand in credit card debt and twenty thousand in student loans. I’m maxing out my roth and my 401k, have a savings plan and negotiated my way into six figures.”
–Nicholas C.

“After buying your book, my personal finances have changed completely…all of my credit cards (which I pay off in full each month) are completely automated. I also rolled both 401ks into a Vanguard IRA.  Yesterday, I was able to put enough money into the IRA to max it out for the year 2010…something I didn’t think I’d be able to do for a few years.  I’m setting up an autopayment plan to put my 2011 IRA payments on cruise control.”
–Steve K.

http://www.iwillteachyoutoberich.com/blog/44-of-people-plan-to-never-invest-again/

How to Never Lose Money in the Stock Market

Now that’s a pretty controversial heading, isn’t it?  It reminds you of Will Rogers’ line:  “I’m more interested in the return of my money than the return on my money.”

Losing money seems to be as big of a part of stock market investing as wealth building.  Losses and their devastating results certainly draw more attention.  In fact, the U.S. Securities and Exchange Commission, as well as other stock market watchdog agencies, require a warning to investors that losses are possible.

So how can I get away with that heading?  Simple:  Because it’s true!  A man named Benjamin Graham first wrote about the system in the ‘50s.  Warren Buffett and his Berkshire Hathaway company followed these rules and became the most successful stock market investor of all times.  These are their rules, and their system.  And here it’s presented in easy-to-follow terminology.

You must have a hook, and the acronym I use for this system is this: D.A.B.L.  (Don’t dabble in the markets, DABL instead). Each letter of the acronym stands for a part of investing; a rule if you will.  Follow these four rules and you will never lose money in the market.  Break even once, and you’re gambling.  There’s an old time Brooklyn comedian, named Myron Cohen, who said this about gambling:

“Here’s how you come out ahead in Las Vegas:  When you get off the plane, walk into the propeller!” So don’t walk into the propeller, follow the D.A.B.L. and build your wealth as sure as sunrise.

“D” Stands for Diversification.  To be properly diversified you need thousands of stocks encompassing all descriptions.  Large Caps, Mid-Caps, Small Caps, International, Growth, Value, Growth and Income, etc.  When you have a widely diversified portfolio, individual stock losses are swallowed by individual gains.  The “Enrons” will be offset by the “Microsofts” and “Exxons.”  In our practice, we use 54 mutual funds to achieve this.  Each fund owns hundreds and thousands of stocks.  Diversification upon diversification.  Now you might ask, “But what if I’d bought Microsoft and Exxon 20 years ago? Wouldn’t I have made much more?”  Yes you would have.  But what if you’d bought Enron?  Before it crashed and burned, Wall Street analysts wouldn’t shut up about what a great buy Enron was. You’d have lost everything, and it wouldn’t have recovered the same as the rest of the market when times got better.   In short, diversification removes the gambling aspect of stock market investing.

“A” Stands for Asset Allocation.  This goes hand in hand with diversification.  This is simply allocating investments in varied sectors of the economy to minimize market downturns and profit on the inevitable upswings.  Here’s a conservative asset allocation for all seasons:

Small Cap Growth funds               5%

Mid Cap Growth funds                 5%

Large Cap Growth funds               5%

Small Cap Value funds                 10%

Mid Cap Value funds                   10%

Large Cap Value funds                 10%

Value Blend funds                        10%

Aggressive Growth funds             10%

High Yield Bonds fund                   5%

Investment Grade Bonds                5%

International Global Bonds             5%

Global Emerging Markets               5%

International Growth                       5%

International Value                        10%

The word “cap” refers to Capitalization – the size of the stocks the fund purchases.  “Blend” means the fund invests across all styles and sizes in its area.  International usually means outside the U.S., while global includes U.S. investments.  This allocation uses strictly mutual funds.  Software like Morningstar places each fund in the “style boxes” described in this allocation.  If you don’t have enough assets to buy all those funds, start with “value” and “growth,” and leave “aggressive” and “emerging” markets for last.  If you’re investing in your 401(k) and don’t have all those options, do the best you can to duplicate this allocation with emphasis on “value.”

“B” Stands for Buy and Hold.  Buy and hold works, as proven repeatedly by the likes of Benjamin Graham and Warren Buffett.  Buying and selling securities results in losses or minimum gains for most investors.  It does generate lots of commissions, which is why the brokerage industry hates that one fact.  However they’re coming around with fee-wrapped account, tacitly encouraging buy-and-hold.

“L” Stands for Long Term Goals.  The minimum holding period is five to seven years.  Diversified buy-and-hold investments have achieved this goal in every seven-year period since 1969.  Stock market investments should always be held for the long term.  Anything else is gambling.

Now here’s a question that always comes up:  “I will be retiring next year.  Shouldn’t I be invested mostly in safe investments like treasury bonds and CDs?”

Well that depends on how much money you have for retirement.  The D.A.B.L. system is strictly to make money grow – make the pie bigger.  Most retirees have enough funds to leave a certain amount alone for seven years.  That’s the amount that should be invested for growth.  It’s going to vary for everyone.  There’s no pat answer – you’ve got to analyze your own situation.  Remember, this system is for growth, and every retirement portfolio needs growth – a certain amount of money targeted to get much larger in a given number of years to offset the ravages of inflation.

So go ahead, D.A.B.L – just don’t dabble.

By Patrick Astre

http://www.myarticlearchive.com/articles/8/224.htm

Message:  If you do not diversify, do not asset allocate, do not buy and hold, and do not keep your stocks for 5 to 7 years ... you are NOT investing but gambling. 

Portfolio of Bonds and Stocks

Risk/return trade-off between bonds and stocks1980-2004 

http://actuary-info.blogspot.com/2008/12/price-of-greed-and-fear_25.html

Asset Allocation

Asset Allocation and Diversification

The Best Way to Minimize Risk of Your Portfolio: Asset Allocation

The best way to minimize the risk of your portfolio is to carefully balance your assets among various investment vehicles.  Many people think that seeking out the top-performing stocks and mutual funds is the key to successful investing.  They are wrong.

Study after study has shown that individual investment choices account for only 5 or 10 percent of a portfolio's success, while 90 to 95 percent can be attributed to the way the portfolio is allocated among stocks, bonds and money market instruments.

Five Factors of Asset Allocation

When you plan to allocate your assets, you must consider five key factors:

1. your investment goal, 
2. your time horizon,
3. your risk tolerance,
4. your financial resources, and 
5. your investment mix.

The three most important personal factors to consider: Your Time Horizon, Risk Tolerance and Investment Objectives.  Read more here:  How well do you know yourself.

Your financial resources relate to HOW MUCH money you have to invest.  The amount of money you have to invest will be a big factor in the risks you want to take.  A small investor just doesn't have the funds to properly diversify a portfolio.  In that case, a well-diversified mutual fund is your best bet for getting started.  Once your portfolio has grown large enough, you may want to take some risk by selecting a more aggressive mutual fund or picking individual stocks.

Your investment mix relates to how you will ALLOCATE what you have to invest.  Historically, the rate of return for large-company stocks has averaged 11.3% between 1925 and 2000.  During the same period, bonds averaged 5.1% return and cash savings averaged 3%.  Rates of return are even higher for small company stocks, but they are also much more volatile.

What chance does your current asset allocation have of meeting your goals?


A portfolio balanced for growth would likely have 60% stock, 20% bonds, and 20% cash.  Using these returns as the average, the portfolio would likely earn 8.4% before taxes and inflation. This is what is called a weighted average.

This is how it works:

60% stock at 11.3%
11.3 x 0.60 = 6.78%
20% bonds at 5.1%
5.1 x 0.20 = 1.02%
20% cash at 3% 
3.0 x 0.20 = 0.60%
Total = 8.40%

You can group your portfolio into these types of baskets and get a weighted average of the return you might expect from the portfolio.  If you have mutual funds, they should calculate what percentage of stock, bonds, and cash are held within the fund.  You can use those percentages when you want to compare this in your portfolio.

Use this information to decide how balanced your portfolio really is and whether that balance matches your savings goals and your risk tolerance.  What chance does your current asset allocation have of meeting your goals?

If your gap is huge and you know you can't meet your goals with the current estimated level of return, you must decide whether 

1. you can tolerate more risk and try to improve your portfolio's growth potential or 
2. revise your goals to a level that more realistically matches what your portfolio can achieve.

Related:
Your Time Horizon, Risk Tolerance and Investment Objectives.  How well do you know yourself?
http://myinvestingnotes.blogspot.com/2010/01/three-most-important-personal-factors.html

Understand what money means to you:  Answer 10 simple questions
http://spreadsheets.google.com/pub?key=tr9oMvjAsDJvkcPgXdd763A&output=html

Does your portfolio need rebalancing?

Does your portfolio need rebalancing?
If you can't remember the last time you reviewed your investments, now might be a good time to give your portfolio an overhaul

By Paul Farrow 2:56PM GMT 07 Jan 2011

Comment

If you have locked your investments away in a drawer, there is a good chance that they are poorly matched and that your portfolio is unbalanced.

Should this be the case, you will need to act to ensure your investment goals are on track. No one can predict what will happen and the best way to avoid boom-and-bust cycles is to make objective decisions that ignore fashions.

Diversification and getting the balance right are vital. Fail to achieve that and it is easy either to buy the wrong kind of investment or to create a portfolio that is vulnerable to shocks.

"Rebalancing is one of the key factors in successful long-term investment performance, probably almost as important as asset allocation itself," said Adrian Shandley of Premier Wealth Management. "As an investor, you need to set your asset allocation at the outset to reflect your attitude to risk and your desired outcomes."

If you have not continually rebalanced, your original asset allocation will almost certainly have become distorted e_SEnD and you could find yourself taking either too much or too little risk.

RELATED ARTICLES

• The wisdom of the Babylonian Talmud holds true today 

  07 Jan 2011

• 'Beware the second half of the year' 

  07 Jan 2011

• Technology to be the surprise package 

  07 Jan 2011

• Why ethical investing doesn’t pay 

  07 Jan 2011

• Green Property: How to revamp your home

  07 Jan 2011

• David Cameron has been bold for party and country

  07 Jan 2011

"In the terrible bear markets of 2007 and 2008 a continually rebalanced portfolio would have produced positive returns by the middle of 2009, whereas a portfolio that was not rebalanced would still have been in deficit at the end of 2010," Mr Shandley added.

Sadly, too many investors realise they have poor asset allocation when it is too late, which is why prevention is definitely better than cure. Building a portfolio is a question of managing risk versus return.

Rob Burgeman, a director of investment management at Brewin Dolphin, the wealth manager, added: "The best defence against this is a well-diversified portfolio of assets that is suitable for the objectives that you are trying to achieve." Thus, the pension portfolio of a 40-year-old is likely to be very different from that of someone in their mid-sixties looking for income in retirement e_SEnD and rightly so.

Attitude to risk is also a key consideration. The sensible investor takes into account the amount of risk they are able to tolerate, both emotionally and psychologically and in terms of their individual needs. It is therefore vital to understand the different levels of risk inherent in various types of investment. Overly concentrating on a single asset class will increase the risk to a portfolio unnecessarily.

So what are the issues that investors should be considering this year? "On the one hand, interest rates at 350-year lows make holding large cash deposits unattractive. On the other, tax rises and cuts in government spending are likely to have a deflationary effect on the economy," Mr Burgeman said.

He continues to favour equities e_SEnD particularly the blue chips, which tend to have international exposure - and emerging markets. He is also warming to US shares, while he has been advocating a reduced exposure to government bonds.

"Europe, too, remains a concern as the contagion could spread further within the region. We remain underweight here. As far as Asia and other emerging markets are concerned, valuations are not expensive by historic standards and, while these regions are likely to pause for breath a little, we remain strategically overweight there."

Perhaps not surprisingly given the uncertain global outlook, many professional investors are taking a cautious stance - and that includes holding gold despite its terrific run. They are also wary of government bonds in light of quantitative easing and the prospect of inflation.

"We favour high-yield and strategic [bond] funds, such as Aegon High Yield and Cazenove Strategic Bond, over government and investment-grade bond funds," said Gary Potter of Thames River Capital, the fund manager.

Marcus Brookes, who manages fund portfolios at Cazenove, is investing in funds that have lagged the market over the past year, including Invesco Perpetual Income, J O Hambro UK Opportunities and Majedie Global Focus. He has trimmed his exposure to emerging markets, given their performance over the past three years.

"Gold is an asset that we have held for two years and, while it has had a strong run over the course of 2010, we still feel it warrants a place in the portfolios for the time being," Mr Brookes added.

Many financial advisers suggest that investors should think of their portfolios as football teams.

"I'd look to dump out gilt-type funds and not be tempted by the hype about absolute return funds, and fill the midfield with international stars like Angus Tulloch (First State Asia), Graham French (M & G Global Basics) and Robin Geffen (Neptune Global and Neptune Russia)," said Alan Steel of Alan Steel Asset Management. Mr Steel reckons that small-cap funds (Standard Life's is his favourite) and commodity funds such as J P M Natural Resources will also score for investors.

However, Mr Steel's bullish tone is set to change in a few months' time when he might change tactics and move to a more defensive strategy.

"If you build up a good lead by the summer I'd go more defensive with the big caps." Again, Neil Woodford of Invesco Perpetual will make his team sheet.

http://www.telegraph.co.uk/finance/personalfinance/investing/8246269/Does-your-portfolio-need-rebalancing.html