I'm told by people who know their money talk that besides diversification (spreading your risk around by buying mutual funds) there is asset class diversification (stocks, bonds, money market and other asset categories).
Every six months or so, I make a determination about what level of risk I'm willing to accept.
During the summer of 2006, I thought it was time to up my exposure to stocks. So I set my 403b inflow to 85% stock. Turned out to be a good guess as the last half of 2006 had a nice run-up in the stock asset class.
As I sit here in the winter of 2007, I'm making a shift. I'm going down to 65% stocks.
My reasons:
(1) Economy maybe slowing down (mainly due to the housing slowdown) and if the Fed has overshot the "soft landing" the market may take a beating.
(2) World situation and domestic political factors suggest to me a bit of skitishness among the people which usual translates to sideways or even downward moving markets.
(3) Interest rates have remained steady which is a neutral signal for the moment in terms of confidence in the economy.
(4) Corporate scandals tend to drag the stocks. When these are beaten out of the system then it might be time to go back to a higher level of exposure.
I'll check back in the summer of 2007 and see if I'll make an adjustment.
Disclaimer: I'm not a financial service professional, I'm just too cheap to pay for one. All advice here should be taken with a grain of salt. Past performance is not a guarentee of future results. People (me included) can and do lose money in the market.
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