For a long time, I had been rather sporadic in managing my investments, picking up a fancy stock today, and jumping into another mutual fund the next day. Obviously the approach was proven wrong in 2008. So my new year's wish: more rigor in managing my financials. After all, although the financial crisis has wiped out a sizable fortune, I still need to count on building and growing my nest egg for a much aspired early retirement.

In the last few weeks, I have some rarely-find personal time to develop and implement my investment plan for 2009. I will take the next few posts to share my plan and solicit your feedback.

My plan starts with personal assessment of macroeconomic situation, a result of at least 30 hours of readings and analysis:

1. Asset Price

Assessment: Asset price is approaching reasonable levels.

Major stock markets have lost almost half of its peak value, and commodity price have tanked. By many measures, equity price is at very attractive level now. On the flip side, since we haven't seen the full impact on corporate earnings yet, it can be argued that the ordinary price metrics like P/E ratio may offer a false reading at the moment. All told, I come to believe that while no one can predict where the bottom is -- the claim that November is a long-term bottom is becoming weaker every day -- it can be said that asset price doesn't have much room to drop further.

Actions: Currently, 3/4 of my portfolio is on cash and that allocation certainly is not optimized for growth. I intend to start increase exposure to riskier assets. Also, I plan to enter into automatic investment plans to avoid being sidetracked during market swings.

2. Recovery Timeline

Assessment: Slow Recovery Is Expected.

Electing a new president won't automatically fix all our problems from many years of overspending. What has been done by the government by pouring cash into the economy is necessary, but we won't solve the problem of overspending by spending more. The recovery can be very painful and we cannot count on this recession to be the same like previous ones that last 18 months on average. The recovery will be more painful than ever, market can drop much further before it gets better, and one can only assume that there will be many false starts. Therefore, keeping some "staying power" is a better choice than an "all-in" approach.

Actions: I will target to keep 40% of my portfolio in cash or low risk assets at the end of 2009.

3. Inflation

Assessment: Long term inflation or hyperinflation is almost a sure thing down the road.

One way to define inflation is the excessive money being printed. Yes, in the short term we will be looking at deflation. But since our new government is surely willing to incur trillion-dollar deficits for as long as it needs to stimulate the economy, and taking time, it will work its way into the economy, one can only expect at one point of time, inflation will take control and we will pay off the trillion dollar deficits by inflation.

Actions: I will gradually increase my exposure to "real assets", including gold, commodities, inflation-protected bonds and alike. When the price is right, I'll be a buyer in the real estate market again. (Yes, MM sold its house in 2005 and is currently renting.)

4. Currency:

Assessment: Dollar depreciation in the long run.

Another popular doomsday claim that may have merit. Yes, dollar is strengthening, but if we don't figure out a way to pay off the trillion dollar debts, dollar will lose its value along the way.

Actions: I'll arrange my portfolio to keep enough allocation to foreign assets.

Do you have any feedback? What's your macroeconomic readings of how this drama will play out?