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Rebalancing Your PortfolioLarry LaBorde Dr Robert B. Gordon used to write about the necessity of rebalancing your investment portfolio every year. I always looked forward to his articles and read them with great interest. If your portfolio is like mine, you can end up with quite a bit of odds and ends over a period of time. In order to invest properly you first need a plan. One of my favorite saying is, "If you don't know where you are going you will probably end up somewhere else." Many people drift through their investments without much thought. They simply pick up a little of this and a little of that. You need a plan. More importantly you need a philosophy. To have a plan you need to have a feel of which way the economy is headed. You need to pick up on the signals. There are many signals out there. Most economic trends are based human emotional trends. We are ruled by human emotion to a large degree and this is why King Solomon said, "There is nothing new under the sun". Human nature remains unchanged throughout history. This is one reason why I love to study economic history and cycles. My personal investment philosophy is that the USA can not continue to borrow its way to prosperity. There has to be an end to this type of madness and it will not be pretty. We have continued to run trade imbalances, continued to shift our manufacturing base offshore, continued to run negative savings rates, continued to ignore the time bomb planted in our socialistic national retirement system, continued to spend our accumulated wealth and continued to run our affairs in an irresponsible manner as a country and as individuals. That being said, I feel a bit of economic discomfort is overdue, I just do not know when. Most things go on for longer than anyone ever thinks they will and then they correct harder than anyone thinks they should. So there you have it; full disclosure of my investing state of mind. Cautious investing does not mean that I do not believe in mankind, quite the contrary. I am very bullish on man's ability to adapt and overcome any adversity. I am just bearish on the present accumulated socialistic governmental policies of the last century. Now let's get down to business on our portfolios. You have to decide where you want to invest your funds. To start with I am not too comfortable with most conventional stocks because of their high P/E ratios. I feel commodities will fare better than most growth stocks. I also feel that peak oil is a real problem. While I am certain we will be innovative and adapt in the long term concerning our energy needs, I also feel there are investment opportunities available within the energy sector for the next decade. I am avoiding most real estate like the plague in 2006. For the same reason as real estate I am avoiding banking and finance stocks. I am holding a large portion of my funds on the sidelines in the form of short term US government debt. Since that is quite a bit of US dollars I am trying to hedge the dollars with precious metals. I realize that there is tremendous growth potential in the Far East, but I am not sure about the stability of their banking system. They seem to have misallocated much capital and overbuilt in many markets without regards to overall demand. They seem to be trying to capture world market share and employ their people without regard to profits. Perhaps the communists don't quite understand the invisible hand just yet. I am afraid they may be in line for an economic correction because of all the misallocated capital. I am sure they will do well in the coming century but I feel it is too early to try to pick a horse in that race. Finally, I feel our interventionist government has assured a good market for weapons of war. While I do not agree with the politics there is definitely a trend that will prove profitable. So with all that let's review my current allocation: 40% - short term US government securities such as CPFXX or FDLXX 15% - hard gold and silver assets such as the CEF fund in Canada & GLD 25% - mining stocks such as: INIVX, GG, GLG, NG, NEM, SSRI, PAAS and a few junior mining companies in moderation 5% - energy stocks such as: CCJ, ERF, CVX, XOM, PPP and WEL (insurance against mid east oilfield terrorist attack) 5% - PRPFX fund (this fund is a pretty close mirror of the mix of stocks already in my portfolio) 2% - defense stocks such as: FSDAX, LMT and ATK 1% - consumer stock: FDO (great low cost consumer goods store w/o debt) 7% - BEARX and RYAIX funds (shorts) I personally plan to take some of the profits from my mining stocks (about 5%) in the next few months and reinvest in more energy stocks to bring that sector up to 10% as opportunities present themselves. I will also be investing a little more of my cash in defense stocks to bring that sector up to 5% in the near future. My short funds are in the red but I feel their time is coming so I will hold them for now even though they should be in the 5% range. I am still looking for a good Far East fund with broad diversity that currently pays dividends (I want a fund that understands profits and not just pie in the sky growth) for about a 5% stake of my funds. So there it is - my 2006 portfolio strategy. My precious metals have done well so I need to take some of the profits and reinvest them in other sectors to keep the mix from becoming too lopsided. Many might call it quite lopsided now but I feel it is a good defensive position that has done fairly well in the past year. In addition to my retirement portfolio listed above I have other assets. I strongly recommend that everyone keep 2.5 to 5% of your entire net worth in gold and silver bullion stored somewhere in your direct control. You should also keep a few thousand dollars in cash nearby. You never know when it might be needed in an emergency. Just ask anyone who evacuated from the Gulf Coast a few months ago. Stock certificates in gold mining companies are about as useful as stock certificates in ATK (ammunition manufacturer) in an emergency. Nothing beats the real thing. Keep a little of both close by - just in case. You owe it to your family and those who depend on you. Larry LaBorde 321gold Inc |
