It's January, Time For A Portfolio Tune-Up
Special to CNBC.com
Another option are municipal securities, which make sense for investors in higher tax brackets in particular. While some analysts believe muni bonds face potential default as states and cities struggle under debt loads, others believe the market has sold off quite a bit, creating opportunities. Investors can test whether muni bonds make economic sense for their own circumstances with a tax-equivalent yield bond calculatoron Morningstar's website.
Yu at EisnerAmper recommends munis for his clients, although he advises them to stay clear of bonds issued in high risk states like California, Florida, New York and New Jersey. He also recommends buying short maturities.
“I have bonds that mature in 2011, 2012, 2013, so every year I have an event that causes us to relook,” Yu says.
The adviser prefers his high net-worth clients buy individual bonds, instead of mutual funds, to avoid concerns with price fluctuations should rates rise. To make buying individual bonds practical, however, an investor would need to have at least $2 million to $3 million to allocate to the sector, he says.
Investors with an asset allocation plan in place should make major changes in their mix of bonds, stocks and cash at most every five years. Otherwise, fine tune, but only if gains and losses have resulted in major changes of 3-to-5 percentage points, advisers say. If an investor's 10 percent allocation to large-capitalization stocks falls to 6 percent, Yu says, it's time buy more large caps.
"It gives you some discipline, and you take some of the emotion out of the investing," he says.