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How I'm Remodeling My Portfolio for 2011© Sound Mind Investing | February 2011
I'm working from home today, looking out my study window at the snow-covered landscape. It's January at our house, a month when I spend time in front of wood-burning fires, plan Valentine surprises for my wife, and look forward to spring when the warm weather returns. I also engage in that time-honored tradition — selecting which SMI strategies I'll be using as I position my portfolio for the coming year. After that task is done, I memorialize some of the details in this editorial. I don't share this because I want SMI readers to imitate my portfolio decisions. In most cases, you shouldn't. Rather, it's an exercise in good faith, demonstrating to you that I have confidence in the advice we give. If you've been hesitant to commit to the SMI way of investing, perhaps it will encourage you to know that I annually stake my financial future on its continued effectiveness. The first and most significant step, of course, is to decide how much of my portfolio I'll invest in stocks and how much in bonds. Looking at our Easy-as-1-2-3 page At SMI, we believe no-load mutual funds are the best option for the average investor. Even given my 40+ years of market experience, I still prefer to delegate, as much as possible, the task of selecting the individual securities in which I invest. That's why I use mutual funds — let the professional managers and their staffs make those decisions. For the stock portion of my portfolio, I'll be relying on the funds in these three strategies: • Fund Upgrading. This approach has been my primary go-to strategy for more than a decade, and my confidence in it has been amply rewarded. I'm committing the majority of my stock allocation to Upgrading, using the new Sound Mind Investing Balanced Fund (SMILX) as my vehicle. (The fund also comes with a significant bond component — more on that shortly). Realizing that the fund's portfolio is only 60% invested in fund Upgrading, I'll adjust the amount of dollars I invest there so that the net result gets me the stock exposure I'm looking for. • Optional Inflation Hedges. I'll invest about one-fourth of my stock allocation in the OIH recommendations • Sector Rotation. The final 15% of my stock allocation is going into this advanced strategy (which is available to our web members • Bond allocation. The biggest piece of this will be provided by my position in the new SMI Balanced Fund. I've become quite impressed with the credentials and track record of the company that will be managing the bond portion of this new fund. This core position will be supplemented with smaller positions in short-term bond funds (for stability), inflation-protected bond funds (to further guard against the consequences of runaway federal spending), high-yield bond funds (reaching for higher returns but with added risk), and global bond funds (to invest outside the U.S. dollar). Just to be clear, the SMI Balanced Fund already includes these other bond types (except global bonds). I'm adding them separately only to boost the total bond percentage of my portfolio higher than the 40% provided by SMILX. So, there's my personal investing plan for 2011. What's yours? Or more to the point, do you have one? You don't need to do anything as complicated as this. Using only the Fund Upgrading strategy is good enough; it's got a great track record. Adding further diversification using other strategies, as I have done, is strictly optional. The important thing is that you come up with an investing approach that is shaped to fit your temperament, long-term goals, and level of understanding. If you haven't put your plan together yet, make it your top financial priority for the next few weeks. Your likelihood of long-term success will be greatly enhanced if you always "plan according to your goals, and invest according to your plan." 
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