Reassessing your investment portfolio

Here are examples Flurry provided of how certain portfolios would have performed during three particular periods: March 2000 - March 2003, November 1998 - October 2008, and November 2007 - October 2008. The examples provided for the three LPFG portfolios are not the exact mix that his company uses. Flurry created them to show that by adding multiple asset classes you can enhance return and reduce risk.

How to diversify

Flurry defines a diversified portfolio as one-third US S&P 500, one-third in an overseas index and one-third in a bond fund. Balanced is an even split among the S&P 500, overseas index, a bond fund and a short-term Treasury security. Allocated involves tweaking that mix a bit and adding a little more to one category and a little less in another.

The purpose of this isn't to tout one particular financial planner but rather to show, among other things, the importance of determining the right mix and rebalancing as needed. Flurry's results have come from years of education and experimentation. It's not easy, which is why so many do-it-yourselfers rely on the typical "style" boxes -- large cap, small cap, value, growth, etc.

"When you're dealing with the three factors -- how much market exposure you have -- stocks versus bonds, how many small companies versus big companies, how much growth versus value as far as the way the portfolio tilts, then you don't necessarily live in those tic-tac-toe boxes," Flurry says.


"We don't care so much about midcap blend and small cap value. It's how much stock do we have versus bonds and then within that stock portion how much is large and small and how much is growth and value. I can't control the market but I can control how much risk exposure we take. If we keep that consistent we can back into an expected reasonable rate of return."

Taking out the dogs

Rebalancing a portfolio involves selling winners, or at least taking partial profits, and figuring out what to do with the dogs in your portfolio. Profit-taking helps reduce risk and it's surprisingly difficult.

"For some reason the profit-taking discipline has been ignored even by experts. It's a lot easier to just buy and hold and say I bought a good company and I'm going to ride it through thick and thin," says Alan Lancz, president of Alan B. Lancz & Associates and LanczGlobal LLC in Toledo, Ohio.

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