April 2007

So you’ve got more than a couple of promotions under your belt and are planning to cruise on the Queen Mary 2 for your next anniversary. Or maybe you’re closing in on retirement but are more interested in rock climbing in Europe than rocking chairs at home.

Your stage of life, your lifestyle, even your taste in vacations can affect your portfolio.

After all, your friend’s sartorial splendor might well be baggy around the collar on you. The perfect portfolio for you is one that meets your own needs, takes into account your com-fort with risk and helps you achieve your dreams.

Here are some steps to help you start building your perfect portfolio, courtesy of Tim Nightingale, vice president with Northern Trust’s private banking.

Measure twice, cut once
To build your perfect portfolio, you need to know what you have, what you want and when you need it. So the first step is to understand your current assets.

“Instead of looking at your holdings individually, find out what comprises your entire pie,” says Nightingale. “Once you look at the big picture, you may find you have investments scattered over several different institutions or you have funds with several overlapping holdings.”

Next, incorporate your financial goals into one timeline.

“Retirement is critical, but many people have several financial goals that they are trying to achieve simultaneously, like financing their children’s education, building their dream house or helping out aging parents,” Nightingale says. “Crafting one strategy that can help you meet many goals is often much better than keeping lots of burners going at the same time.”

Finally, figure out how much risk is comfortable for you. Depending on your timeline and your personality, there will be several investing options that can help you meet your goals and still let you sleep at night.

Tailored fit
Once you know what you have and what you want, determine your asset allocation.

Roughly 90 percent of your portfolio’s performance is the result of asset allocation, Nightingale says. So focus about 90 percent of your attention on this important step.

Ready-to-wear models that split your ideal allocation into stock and bond slices depending on your age are a starting point. But the perfect portfolio isn’t just about how old you are. After all, if you ask 10 people where they want to be in 10 years, you’ll get 10 answers.

A more tailored approach meets a broad range of needs and takes advantage of the diverse array of investment options—from blue chips to emerging markets—in proportions that make sense at your stage.

It’s about the big picture, not trying to time the market.

“Different investments rise and fall at different times and at different rates,” says Nightingale, “When one has a bad year, others may be holding their own or appreciating.”

Start with these patterns
Here’s a place to start—three model portfolios for different time horizons, risk tolerance and the current market. These are just hypothetical samples, so be sure to check with your financial advisor to tailor an allocation for your goals. You should also check and rebalance your allocation from time to time as your needs and market conditions change.