Investment experts never got tired of reiterating the need to diversify one’s holdings. Market forecasts are numerous, but they are notably unreliable, especially at the time of increased volatility we are experiencing today.

 

This is the reason folks who are heavily invested in, say, real estate sector, can be bitterly disappointed in a short while. It does pay, however, to make modest adjustments in your asset allocation at the time of major shake-ups like terrorist attacks, economic cycles or elections.

 

The prospects for the bond market are overshadowed by the gloomy budget deficit caused by a combination of tax cuts and ongoing warfare in Afghanistan and Iraq, but nobody can with all certainty predict that the market for bonds will be bearish for a considerable time stretch.

 

Stock funds have been losing 6% a year on the average since 2000, with enormous losses from 2000 through 2002 and gains in 2003. Currently, stocks are pretty robust, but still trade lower than their stellar levels of the ‘90s. Their performance will depend on the evolution of the economic recovery, and the outlook seems optimistic given the recent macroeconomic data.

 

It can cheer you up to think that global economy grows at a strong pace and in 2004 may reach a 30-year high. Consumers’ credit has improved, consumers now own more assets, and corporations have recently shown strong earnings. Productivity also shows considerable growth.

 

Under these circumstances, sensible investors probably should not hold large stakes in a certain industry, assuring that their portfolios will adequately react to a variety of possible scenarios. Overexposure to a particular sector could severely jeopardize your life-time savings. It is might be feasible to trim your investments in real estate and junk bonds that have been strong over the past few years.

 

And it always makes sense to take caution with market forecasts.