2. Assess your cash needs. If you are in a position where you'll need a chunk of cash within the next five years, make sure these dollars are not invested in stocks. For example, if you have a kid heading to college in the next year or two, you shouldn't have tuition money bouncing around in stocks. Or if you are retired and taking income from your portfolio, you'll want to make sure you have at least five years' worth of income that is parked in more conservative investments.
3. Reduce foreign holdings. I realize that many financial professionals argue that it's prudent to have a third or more of your portfolio invested in foreign securities, but I don't think that's always wise. The reason is this: When people are invested in foreign securities and the U.S. market is performing better, most investors don't have the patience to wait out the market cycles. They'll sell their foreign holdings, often at the wrong times.
Another reason to keep foreign securities at a smaller piece of your allocation — say, maybe 20 percent — is because of the currency markets. The dollar has rallied sharply the past few years, which has reduced the value of foreign securities. If you plan on moving to Europe, then having a bunch of investments denominated in European securities may make sense. But if you plan on staying in the United States, why load up on assets that have to be converted back to U.S. dollars?