October 2006

Although fall is just arriving, year end will be here before you know it. As you reflect on 2006, does your list of accomplishments include moving closer to your financial goals? Now’s the time to find out with a portfolio check-up. The end of the year is the perfect time to make sure your investments stay sound and healthy for the upcoming year.

Review your investment objectives and strategy
Setting up your portfolio is not a “once and done” proposition. Your personal circumstances may have changed. The birth of a child will make you start thinking about long-term education plans, while your child’s college graduation may have you thinking about redirecting your cash flow into other goals such as your own retirement. Perhaps you’ve received a bonus at work or other windfall and now need to include that as part of your portfolio mix.

Since diversification and asset allocation are an important part of your strategy, you’ll need to reevaluate these as well. Diversification involves dividing your investment dollars across the broad asset classes of stocks, bonds and cash. Asset allocation is deciding what percentage of your money you want to invest in each of these. Asset allocation is so important that, according to a study by Brinson, Hood and Beebower, the way you divide your portfolio determines 91.5 percent of your investing success. So you’ll want to make sure both your diversification and asset allocation strategies still continue to reflect your goals as you head into 2007.

Rebalance your portfolio
For many investors, creating a diversified asset allocation mix is easy compared to maintaining it through life’s—and the market’s—ups and downs.

Besides the personal circumstances already discussed, you may also need to rebalance due to market fluctuations. Some investments may perform better than others, changing the balance of your asset allocation. For example, if your stock holdings perform well and rise above your original allocation, your risk exposure may increase to a level you are uncomfortable with. Conversely, if your stock holdings fall short, future growth potential may be sacrificed.

Over time, the nature of the market can throw your portfolio out of balance. If you had decided that 75 percent of your portfolio would be in stocks and 25 percent bonds, and stock prices increase, your portfolio might now be 90 percent stocks and 10 percent bonds. So it no longer reflects your investment strategy.

Knowing when to rebalance is half the battle; knowing how to rebalance is the other. That’s where Northern Funds can help.

Reach out for help
With Northern Funds you’re never alone. Your Northern Trust Relationship Manager can help you conduct your annual portfolio check-up and offer assistance in rebalancing to prepare you for the upcoming year. The name and phone number of your Northern Trust Relationship Manager can be found on your account statement. Or, call the Northern Funds Center at 800/595-9111, and an investment representative will be available to assist you from 7:00 a.m. to 7:00 p.m. Central time.

As 2006 comes to a close, take the time to give your portfolio its annual check-up. Time spent today will help ensure a healthy portfolio tomorrow.