Not Sure What the Experts Are Up To,
but Here's What I'm Doing in 2008
By Austin Pryor
© Sound Mind Investing | January 2008
Experts make predictions. That's one of the fun things, I suppose, about being an expert—explaining to an anxious world how the future is going to unfold.
Helping us to understand, for example, that
"Heavier-than-air flying machines are impossible."
— Lord Kelvin, president, Royal Society, 1895
Or why
"there is no likelihood man can ever tap the power of the atom."
— Robert Millikan, Nobel Prize in Physics, 1923
And then there was this keen assessment:
"There is a world market for maybe five computers."
— Thomas Watson, IBM chairman, 1943
And this famously ill-timed forecast:
"Stocks have reached what looks like a permanently high plateau."
— Irving Fisher, Professor of Economics, Yale University, 1929.
Well, as Yogi Berra is said to have observed, "It's tough to make predictions, especially about the future." That's why, as you've probably noticed if you've been reading SMI for very long, we don't try. Unlike most investment newsletters, you won't find any market forecasts for 2008 lurking in these pages. On that question, we're cheerfully clueless.
Isn't honestly admitting that a handicap in our line of work, you might ask? Not if you have a track record of beating the market for nine straight years, as we've been fortunate to do. We may not be experts on the future, but we're pretty knowledgeable about how to invest in mutual funds. The keys to our (and our readers!) success have been diversification, a structured buy/sell strategy based on objective data, and a healthy dose of self-discipline. It's worked in our Upgrading portfolios, and it's worked in my own personal investing efforts.
In early 2001, I took SMI readers into my confidence and let them look in as I was putting my personal retirement portfolio together for that year. Many wrote to say they found it greatly reassuring to learn that I'm practicing what I preach—that is, I'm following the same strategies I recommend to my readers.
Since then, by popular demand, it's be come something of an annual event. You know that personalized investing plan we're always saying you need to have? Well, here is mine for 2008. You should have one, too....one tailored to your specific situation and goals. In all likelihood, your plan will look quite different from mine.
• 40% in fixed-income funds. We recommend a 60% stock, 40% bond mix for someone at my season of life. I'll divide the portion that's designated for interest-earning types of investments among a basket of bond funds.
• 24% in SMI's Upgrading strategy. I like to divide the stock portion of my portfolio into four parts, each guided by a different investing strategy. This diversification gives me peace of mind. Among the four, Upgrading receives the lion's share. If I could choose only one strategy, this would be the one I would follow (and would recommend to you). I'll once again be doing my Upgrading via the SMI mutual funds, putting two-thirds of my allocation into the SMI Managed Volatility fund due to its expected lower degree of risk (attractive at my age), and the remaining one-third in the regular SMI Upgrading fund.
• 12% in SMI's Enhanced Just-the-Basics  strategy. This slightly advanced version of our traditional Just-the-Basics strategy combines a heavy indexing emphasis with a few actively-managed funds. It has handily beat the market in recent years and yet retains a great deal of simplicity.
• 9% in SMI's Sector Rotation strategy. As explained in Sector Rotation: Risky, But Highly Rewarding, this high risk, high reward approach has an eye-catching track record. But because of the volatility, we recommend limiting any allocation to a small fraction of one's portfolio.
• 15% in a market-timing strategy. Using skills I picked up during the 12 years when I made my living as a market-timer, the goal here is to preserve capital during bear markets. This safety valve provides me the psychological comfort needed to let my other strategies take higher risks.
So, there's my personal plan for 2008. What's yours? You don't need to do anything as complicated as this; using the Upgrading strategy alone is sufficient. The important thing is to match your stock/bond mix with your risk temperament and long-term goals, and to follow the strategy faithfully. Do that, and no matter what the financial experts may predict, you're on your way to long-term success. 
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Austin Pryor has three decades of experience advising investors, and is the founder of the Sound Mind Investing newsletter and website. Austin lives in Louisville, Kentucky, with Susie, his wife of 46 years. Two of his sons, Andrew and Matthew, work with him at Sound Mind Investing. A third son, Tre, is a Realtor® in the area. |
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