Ask These Five Questions Before Putting Your Money to Work

The extra cushion you get by keeping some of your money out of stocks will reduce the swings in your portfolio. In a March 2003 article looking at returns from 1970 through 2002, Charles Schwab found that a portfolio with 80% in stocks and 20% in bonds and cash fell 19.37% in its worst year. Meanwhile, one with 95% in stocks and 5% in cash was down 24.1%.

So, one key question to ask yourself is, does my portfolio have the right mix? A lot of that depends on what you've been buying over the past month or year. If you've spent the past year loading up on Treasuries, you might want to look at undervalued stocks instead. If you still have all of your money in stocks, then short-term bonds might not be a bad idea.

You've probably read about how high-yield or junk bonds have done well this year. The average high-yield bond fund is up 11.3% in 2003. And this could still be a decent place to put your money, if you have a few years to invest. Also, junk is an asset class that's lacking in a lot of people's portfolios.

But -- and this is a big but -- you don't want too much of your money in high-yield bonds. A 10% or 15% allocation is all you need. If you have that and then some, you don't need to put more money in junk bonds. And given the recent run-up, you might want to trim that position.

What Areas Are Attractive?

As I said above, given the rally in Treasuries, corporate bonds, high yield and even stocks, not one investment category is screaming "buy" right now. But some stocks, compared with Treasuries, do look cheaper. The yield on the 10-year Treasury is the lowest it's been in about 45 years. Another way to look at that: The 10-year Treasury is the most expensive it's been in about 45 years.

If you think financial Armageddon is coming and rates are going to 2%, then there's money still to be made in Treasuries. The Federal Reserve has cut rates to the bone. A tax cut is coming down the pike. But earnings look as if they're picking up, so stocks could very well outperform Treasuries.

You just have to make sure you don't overpay for the stocks you buy. Some sectors, like chip and chip-equipment companies, have run up sharply and look expensive. One way to avoid that is by giving your money to a manager who looks for cheap, beaten-down stocks. The (UMBIX Quote)Excelsior Value & Restructuring fund is one place to look. And you need only $500 to invest in the fund, so you don't have to spend all your money at once.