Insightful Investing

Bond Funds benefited most from the FOMC actions to lower interest rates as Fidelity Intermediate Government (FSTGX) gained 3.2% and PIMCO Low Duration (PLDDX) picked up 2.6% for the quarter. Not exactly stellar numbers, but relative to many others, these kept you in front of the crowd, including for the first time in a while High Yield Bond funds.

On the equity side of the ledger, Fidelity Contrafund (FCNTX) at 2.5% and Turner Emerging Growth (TMCGX) at 2.2% were our only noticeable winners.

The big news this quarter, and for the year overall, came on the down side. While Cohen and Steers Realty Shares (CSRSX) and Fidelity Real Estate Investment (FRESX) were both down -15% for the quarter, our saving grace was Real Estate favorite Third Avenue Real Estate Value (TAREX) which lost only -7.0%.

For the year, all of our bond funds did well, led by Fidelity Intermediate Government (FSTGX) with a return of 7.9%. In the US stock market, Growth Funds were the place to be. At the head of the class were Allianz CCM Mid Cap (PMCDX) which returned 21.6%, Fidelity Contrafund (FCNTX) gaining 19.8%, and Turner Emerging Growth (TMCGX) earning 17.3%. All of our International Stock Funds did well, with Fidelity International Discovery (FIGRX) scoing the highest with a 19% return for the year.

Our January 2008 Mutual Fund Portfolios, ETF Investment Portfolios, and Best Fidelity Funds have been updated through December 2007. The investment performance history of our mutual fund portfolios and ETF investment portfolios are tracked on our investment portfolio performance page.

Asset Allocation for 1st Quarter 2008

We are starting out the new year with some changes to the Insightful Investing Newsletter that we hope will simplify life for our subscribers, and for us as well. We will now have three Mutual Fund Portfolios, a growing number of ETF Portfolios, along with a Portfolio that combines Mutual Funds with Exchange Traded Funds (ETFs). We will no longer include extra funds that we are not including in our portfolios.

What that means is that you no longer have to make a choice of funds in a given category, we will take care of that for you. As we have said in the past it is more important to make the right choices for your Asset Allocation than to have the best Mutual Fund in the wrong category for the current market environment. What this means is that in taxable accounts you should not switch winning funds in a given category unless you have held the for at least a year so that you can take advantage of reduced capital gains.

As often is the case for the beginning of the year we have several changes to our Mutual Fund Portfolios. For those accounts that have access to a wide variety of Mutual Funds, we have added Rydex Managed Futures (RYMFX) and Rydex Sector Rotation (RYSRX) to the portfolio mix. We are also replacing Royce Pennsylvania Mutual (PENNX) with the Royce Micro-Cap Inv (RYOTX) because we have liked it for a while, and more importantly, it is now open to new investors. In addition, since we are only tracking those funds that we have placed in our portfolios you will find some funds no longer included in our listings.

We have added a couple of funds to the bond side of the Fidelity portfolio, Fidelity Inflation Protected Bond (FINPX) and Fidelity New Markets Income (FNMIX). Also, while Fidelity has excellent funds in the Large Cap space, their size seems to hinder the effectiveness of their Small Cap funds. That being said, we are switching our Small Cap allocation to the new Fidelity Small Cap Enhanced Index (FCPEX).

It is time to get more conservative to start 2008 because we just do not like the prospects ahead. We are taking 2% each out of Large Cap, International, and High Yield Bonds, and 4% out of Mid Cap and Small Cap. Increase your allocation to cash by 4%. Then, if you have access to Long / Short Funds (which includes Hedge Funds and Managed Futures Funds) invest the remaining 10% into those funds, otherwise, if you are working with Fidelity Funds, or your 401k plan, split the remaining 10% between Short Term and Intermediate Term Bond funds.

Asset Allocation January 2008

There was almost nowhere to hide in the 4th quarter of 2007 as the sub-prime mortgage debacle has put a dent in the results of some of the year's best performers. The flight to quality, and three rate cuts by the FED this year, helped Bonds be the only winning asset class this quarter with a 3% gain.

That little bounce experienced by Real Estate last quarter was your last opportunity to escape a major portion of the carnage experienced in that sector, which was down -13.4% for the quarter, and -16.8% for the year. Value stocks lost their place at the head of the class this year and large cap stocks finally overtook small cap stocks. With that little piece of information you might have guessed that the worst place to be (in the stock market that is) was Small Cap Value stocks.

For the year, there were a couple of leaders. International Stocks were up over 11%, but more impressive were Emerging Markets stocks that almost helped you take home 40% for the year. 10% of your portfolio in one of those funds or the MSCI Emerging Markets (EEM) ETF would have more than made up for some of those asset classes in your portfolio that had a difficult year. The right place to be in the US stock market in 2007 was Growth stocks, in particular Large Cap Growth and Mid Cap Growth which were both up over 11%. While it looked like the markets were going to have an excellent year at the half way point, the increased volatility showed once again why it paid to have a well diversified portfolio.

Investment Returns December 2008