Get Your Portfolio in Shape for 2008

During the end of the year, we often hear a lot of banter from the professional investment community about "tax selling" and other backward-looking tax-related strategies. However, I believe that not enough attention is focused on looking ahead to the next year.

As December winds down, there are many tasks that are not tax related that investors can perform that can both optimize returns for the year about to pass and prepare their portfolio for the year to come. So this installment of The Finance Professor will focus on a year-end valuation and risk -management strategy for closing out 2007 and forging a solid foundation for 2008.

In "The Finance Professor: Manage Risk Like a Pro," I covered a few techniques for how individual investors can manage risk in their portfolios. One of the key steps is to create a spreadsheet or database of your current holdings. If don't already have one, then now is the best time to get this data in order, because it will come in handy for the rest of this lesson.

Set Your Price Targets for Next Year

Analysts and professional money managers are always "forward thinking" (see forward price-to-earnings ratio ). With next year around the corner, now is the perfect time for you to do a little forward thinking of your own.

For each of your holdings, set a price target that reflects expectations for next year. So if you are working off of "trailing" data, it is time to revisit your investment assumptions. Here is how to do it: