Many investors have neglected international investing in recent years. Now that the U.S. dollar is falling and foreign stock funds are outperforming domestic stocks, "make sure you have a full allocation to nondomestic securities," says Hayes Miller, head of global asset allocation in North America for Baring Asset Management.
In 2004 the benchmark international EAFE index（Europe, Australia, Asia, and the Far East）returned 21%, mainly due to the resurgence of China. Emerging-market funds have done even better, gaining 26% in 2004. "These tend to be very long cycles," says Miller, who thinks exposure to Asia will be especially important in the years to come. One strategy to consider: Use low-cost exchange-trade funds（ETFs）to invest in developed markets and then add an emerging-market fund to get access to developing markets, Miller suggests.
Step 5: Set aside some cash for trading —— if you must. Have the money to risk and think you can increase it by trading stocks? Go ahead. Just separate those funds from your long-term investments.
"History tends to smooth out market performance," says Joseph Battipaglia, chief investment officer at Ryan Beck & Co. "But there can be times when you can dramatically outperform the averages" by choosing the right stocks. The key, he says, is to set entrance and exit points and stick with those price targets.
It's easier said than done, of course. "You can try to trade if you're smart," says Patricia Van Kampen, chief equity officer at Mason Street Advisors. "But your chances of losing money are much greater if you don't do it right." Most individuals will do far better by diversifying their assets and sticking with a long-term plan.
Before the new year gets too far along and you fall back into those old undisciplined ways again, take a little time now to review these five steps and craft a broadly diversified approach that makes the most sense for you. Then no matter what the market does in 2005, at least you'll know you're giving it your smartest shot.