Positioning your portfolio for ’07 Featured

7:00pm EDT December 31, 2006

With the new year upon us, now is a good time to identify prudent ways to position your portfolio.

That said, here are some ideas that the experts at Hilliard Lyons offered recently when Smart Business asked them to comment on prospects for 2007.

Why re-evaluate tax and investment strategy?

The political landscape is changing. Now that the Democrats have taken control of the both the Senate and the House of Representatives for the first time in 12 years, “it is hardly certain that [they] could raise taxes in the face of a veto by President Bush,” according to a Nov. 27, 2006 Wall Street Journal article. “Still, about half the 41 newly elected Democratic congressmen favor reversing the tax cuts for the richest taxpayers [after they enter office], rather than waiting until they expire at the end of 2010.”

What should be done about smaller, lesser-known stocks in a portfolio?

Closely analyze the future growth prospects of stocks in your portfolio that posted above-average investment results in recent months.

“The NASDAQ has gained almost 25 percent since the summer correction,” the Wall Street Journal said on Nov. 22, 2006. Many stocks in the composite — especially smaller, lesser-known names — have posted significantly higher gains. As a result, the compelling reasons that may have encouraged you to buy certain securities could now be largely reflected in their valuations — meaning their upside potential may be modest at best, near-term.

Are domestic stocks still an intelligent choice?

Consider investment opportunities outside the United States. There are always good reasons to add non-U.S. stocks to your portfolio. For instance, buying securities of foreign corporations can potentially reduce the portfolio risk because a decline in the value of your U.S. holdings may be offset by an increase in your non-U.S. investments.

But now may be a good time to increase your exposure in non-U.S. markets because of the strong growth potential beyond our borders.

Take China and India, for example. Economies in both of these countries are expanding rapidly and, in turn, their stock markets have been rising sharply. While past performance is no guarantee of future results, the Chinese and Indian stock markets were both up approximately 50 percent through Nov. 30, 2006.

What about those domestic stocks, then?

Don’t overlook U.S. multinational companies. This year, “the dollar has lost 11.2 percent of its value against the euro, 2.6 percent against the yen and 12.8 percent against the [British] pound,” said the Dec. 6, 2006 edition of the Wall Street Journal. As a result, Americans traveling overseas have been paying more to shop, but U.S. multinational companies have been boosting their profits when they convert foreign currencies into greenbacks. This fact has helped lift the returns of several U.S. multinational stocks.

If you believe the dollar’s slide will continue, begin analyzing the potential of U.S. multinational companies that might be suitable for your portfolio. While past performance is no guarantee of future success, U.S. companies with overseas exposure generally fare well compared to other stocks during periods of dollar weakness.

What happens if the economy takes a dive?

Develop a game plan for managing your finances in the event the economy sputters. No one can say with certainty whether the economy will turn sluggish in 2007, but if recent data are any indication, the current expansion may be headed for a modest cool down.

What are good stocks to own if the economy slips?

Several attractive investment opportunities across a range of sectors are worth considering in the context of your long-term plan. One example: consumer staple companies. Generally, their earnings are often unaffected by the economy’s ups and downs. One caveat to keep in mind: Your goals, time horizon and risk-tolerance level should dictate which companies are most appropriate for you.

If I’m still stumped, who can help me?

Rely on the expertise of your financial adviser for sound, pragmatic advice. The outlook for the stock market is generally positive thanks to low interest rates, which reduce borrowing costs, and falling energy prices, which give consumers more money to spend and helps corporate profits. (Consumer spending is responsible for approximately two-thirds of economic growth.) But the easy money that equity investors made in 2006 may not be as easy to earn in 2007 given the headwinds facing stocks — most notably a sharp decline in the housing sector and concerns by Fed chairman Ben Bernanke that inflation still remains uncomfortably high.

FOR MORE INFORMATION on the financial services that Hilliard Lyons provides, telephone the Dublin office at (800) 285-9667 or visit the Web site www.hilliard.com.