Seeking Solid Middle Ground

NEW YORK -- Investment portfolios are supposed to be beautifully proportioned things, designed just so to meet an individual's life situation and risk tolerance.

But with the run-up in stocks over the past four years and various market segments moving in different directions, many portfolios are bulging in places they shouldn't be.

And it's not just the market throwing carefully laid plans out of whack. Getting married, having a baby, sending kids to college and preparing to retire can seriously tip the scales of a portfolio.

Like many others, Barry Nigro, a District attorney and a father of two grade-school children, learned this the hard way when the tech bubble popped in 2000.

"Inadvertently, I had allowed a large portion of my portfolio to be invested in the technology sector," said Nigro, adding that tech stocks had swelled to a third of his equity holdings during the boom. "The fact that it was doing well and growing at a pretty good clip made it easy to leave it alone."

Now, Nigro, 47, makes it a point to meet with his financial adviser every fall. Together, they comb through his investments, nipping here and plumping there to whip the overall portfolio back into shape -- even if it means buying more of the not-so-hot performers and selling some of the stars.

This year, that would probably involve paring back on holdings in real estate investment trusts, large companies and emerging markets, said Robert Moon, Nigro's financial adviser, who works for Citi Smith Barney in the District.

"The question is, what are they going to do next year?" Nigro said. "And I think the key is not to get too greedy."

If you haven't given your portfolio a workout in a while, now may be a good time, money managers say. After a four-year recovery, U.S. stocks are hitting record highs. Some major market indexes in Europe and Japan have doubled. Riskier asset classes, such as emerging markets, are up even more. China has tripled. Brazil has quintupled. Stocks in small companies have skyrocketed. Into commodities? Gold is up substantially, too.

And that's all great, of course, until it isn't.

"Let's say something grows to 20 percent of your portfolio, and then it gets hit and goes down 50 percent -- that's going to trim 10 percent off of your [overall] portfolio," Moon said. "The odds of that happening here in the next year or two are very high because a lot of the asset classes people have been pouring into in the last year or two are very volatile."

So what's to be done?