Investing new economy
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investing
How to do an investment portfolio analysis

"There are going to be parts of a portfolio that are going to zig when others zag. You want securities that, under other circumstances, will protect the portfolio," says Hopwood.

The important thing to consider is how an investment performs compared to its benchmark or similar securities. Was it a bad year for all small-cap growth companies, or just your small-cap fund? If small companies in general underperformed, then selling it or switching it for a hot fund in another sector could be a bad move.

"It could be just what's happening at the moment. Then you make the change and you whipsaw yourself," says Hopwood.

"I see too many people do that, one day value, then growth, then bond funds, then stocks. ... You have to look forward," he says.

What about income?

Evaluating investments isn't always about return. A large portion of investors need more than capital gains, they need income from their investments. Eking out a living from fixed-income investments has become progressively more difficult over the past few years as the Fed ratcheted down interest rates.

Sustained low interest rates have forced retirees to get creative when it comes to living off their investments. Simply rolling over CDs may have cut it in 2007, back when the average five-year CD was yielding around 4 percent. Now that the average yield on a five-year CD is less than 2 percent, according to Bankrate's most recent interest rate survey, stretching for yield has compelled many investors to take on more risk.

Unfortunately for income investors, principal preservation as well as risk has to be considered in the search for yield.

"There is no free lunch. See how (the investment) did in 2008. That is the litmus test for me. If you can stomach what these things did in 2008, then you know that you can probably stomach the investment," Hopwood says.

Instead of jumping for the highest yield, go down the spectrum of risk from the very safest investments to the more risky. Hopwood provides the following example:

  • Federally insured money markets.
  • Short- to intermediate-term CDs for laddering.
  • Short- to medium-term bond funds.
  • Corporate bonds.
  • Balanced or hybrid funds containing stocks, bonds and convertibles.
  • Dividend-paying equity fund or individual stocks.

Whatever the investing goals, investors should have an investment plan in place, as well as a plan for evaluating individual investments. Rather than making changes willy-nilly based on desperation or the latest hot asset class, keep your original plan in mind, systematically evaluate investments and make changes in moments of lucidity -- not out of emotion.

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