But stocks certainly do not always go up, and there is no magic to assure their prices will rise next year. Indeed, any of a number of eventualities might sabotage an optimistic scenario: hints of greater inflation (so the Fed raises interest rates next year, instead of lowering them as people are anticipating); a new terrorist attack here; a widening or worsening of warfare in the Middle East; a more precipitous drop in the value of the US dollar; war with North Korea or Iran; increased tension with China; violent unrest in Mexico; a spectacular natural disaster; a major corporate failure; etc.

In short, "Prediction is very difficult, especially about the future (Niels Bohr)." Given that, if one were trying to set up a portfolio for the next 12 months or so, it might be best to seek not just performance but also safety.

My personal preference is to have about a third of liquid assets in non-equities that provide a good yield. Others may differ about the best percentage, but few would argue with the wisdom of such holdings once a bear market in stocks or stock mutual funds has begun in earnest. The trick, then, is to have them ahead of time, so they can provide regular payments through the investment lean times and available assets that can be redeemed for the purchase of stocks at their then lower, bargain price levels.

Income instruments are not my forte, but I have been impressed with the record and wisdom of "Forbes" fixed-income columnist, Richard Lehmann, who, in the magazine's 12/25/06 issue, has provided on its free online site the following suggested portfolio of such securities for the year ahead: "A Balanced Portfolio for 2007 - Forbes.com." He feels it should do well in most economic contingencies while providing a yield of 9.3%, if assets are allocated as he recommends.

For the equity side of one's nest egg, I have found six no load mutual funds which, taken together, have had significantly lower risk of permanent loss than the benchmark S&P 500 Index and yet offered a better overall performance. Based on info through 12/15/06, all six are no load funds (though some have small redemption fees if sold in less than six months) and are still open to new investors. Their ticker symbols, toll free numbers, and long-term records are provided in the table below. The average of their annualized performances over the last 10 years (or since inception [on 9/3/97] in the case of CGM Focus) was approximately 14%. The S&P 500 Index's annual performance in that period was only about 8%, and the index was more volatile.

One caution is that this approach does not lend itself well to market trading. I would suggest holding any purchased assets for a year or more before potentially selling (if a valid reason then exists to do so).

Another warning is that, between now and 12/31/06, many mutual funds will credit accounts with significant dividends and capital gains. While a fund's share price will generally be lowered to compensate for these added amounts, so there may be no net performance gain, IRS treats these distributions in taxable accounts as income. So, it is often best to wait till the early part of the new year before investing in mutual funds that have not already made such year-end payments.

(Disclosure statement: Larry and Val have holdings in some of the suggested assets but do not "make a market" in any of them and do not derive any direct benefit from recommending them, except perhaps for a bit of smug self-satisfaction.)