Mark Luschini

Friday, 31 January 2003 06:31

Portfolio points

Strengthening your investment portfolio requires considering your individual needs, goals and other factors. Here are some of those considerations.

* A long-term investment strategy should not be altered just because near-term conditions in the financial markets change. This constitutes market timing, which is extremely difficult to do with any success. Consider amending your strategy if your investment time horizon, return objective, risk tolerance, tax or estate issues, income or liquidity needs change.

* What percentage of a portfolio should be weighted in stocks, bonds and cash? Consider rebalancing your portfolio as necessary within your long-term investment strategy.

* Different asset classes have different risk/reward profiles. If your portfolio is substantially out of balance with your asset allocation strategy, you may be assuming more risk than you realize.

* If your equity portfolio is overly concentrated in a particular industry sector or capitalization, it may be susceptible to excess volatility. Similarly, if your fixed income investments are overly concentrated in treasuries or mortgage-backed securities, your portfolio may be subject to interest rate risk that is greater than you are willing to assume.

* Attempt to anticipate needs for income or substantial withdrawals to lessen the likelihood of having to sell a security to raise cash at an inopportune time. Consider reviewing the composition of your fixed income investments to match their maturity with your liquidity needs.

* The decline in the equity markets has created an opportunity to purchase shares in quality companies at reasonable prices. Replacing existing positions with new purchases or adding stocks to better diversify may be appropriate.

* Consider capturing losses to shelter gains incurred from trimming an overweighted position that has a low cost basis and use proceeds to further diversify.

* The volatility of the stock market should not influence your need to plan for your children's education, retirement, charitable giving or the protection of your assets for your beneficiaries.

* A comprehensive financial plan pulls your financial affairs together, enabling you to make adjustments in your portfolio within the context of your total financial picture.

* Your investment plan and estate plan are mutually dependent. Changes in the tax laws or changes in your long-term preferences can have a dramatic effect on how a portfolio is structured. Mark Luschini is senior vice president at Parker/Hunter Inc.