As a result, all of these recent winners–real estate, gold, oil and gas, foreign stocks, emerging markets, small-caps, value stocks–are much more expensive than they were five years ago. They may have another great year in 2007 but they might not; as the saying on Wall Street goes, no tree grows to the sky.
Just think of the boom in large-cap growth stocks, especially tech stocks, in the late 1990s. Those stocks crashed in 2000-2002 and have yet to recover.
This is not to say you should sell all your recent winners. You should, though, review your current asset allocation.
Say your goal is to have 20 percent of your portfolio in foreign stocks. If you are now up to 30 percent, after years of superior gains, it’s time to sell some shares and get back to 20 percent. The same is true for real estate, gold, etc. Yes, you might miss out on further gains but you’re also cutting your risk of sharp losses.
After you sell some winners, put the proceeds into asset classes that now are below target levels. Today, that probably means U.S. stocks, especially large-company stocks.
Don’t be afraid to invest in growth stocks, including tech stocks. Many U.S. corporations have large amounts of cash on their balance sheets today. That cash may be spent in 2007 on technology that will improve productivity, and such spending could revive slumbering tech stocks.
