Number's Up for S&P, and That's Not Good

2058.90.

That's the number. I've been watching the S&P 500 decline this morning and wondering if we'd hit the number. As I was typing that sentence, we did indeed fall through 2058.90, although we've bounced back somewhat since. Why is that figure important?

2058.90 was the closing level for the S&P 500 index on Dec. 31, 2014. So that's the benchmark that professionals -- and all of us interested in markets -- should be using to measure 2015's performance.

So when we hit "dead flat" nearly 10½ months through the year, one is tempted to ask ... is it worth it? Is it worth being fully invested in stocks when we receive zero capital gain in return, and a paltry yield of about 1.9% on top of that?

The answer of course is no. There is no stock valuation model in use anywhere that would spit out 2% as the required return on stocks. That is just as true with short-term interest rates at zero as it would be if the cost of immediate money were 5%.

So the investor's focus should return, as always, to asset allocation. It's the key decision for any portfolio manager, but is far too often ignored by individual investors. The client base for my asset management firm, Portfolio Guru LLC, is entirely composed of individuals, and I know this decision is often the last one, though clearly it should be the first one.

There's just no academic justification for having a portfolio composed entirely of stocks, yet I see many (before I have been able to Guru-ize them) that are.

The results thus far in 2015 should be a lesson that the market does not, contrary to what some pundits would have you believe, "always go up." Yes, we've had a positive total return thus far in 2015, but because that yield cushion is so small, I am not betting the farm that we'll end up in the green for 2015. Especially with an extraordinarily big matzoh ball hanging out there between today and New Year's Eve: the Federal Open Market Committee meeting on Dec. 15-16.

For the first time in my professional career -- which is now, sad to say, well into its third decade -- I'm predicting a Fed action. They're going to raise rates on Dec. 16.

So, exactly seven years to the day after the Fed funds rate target was cut to zero, Janet Yellen and company are going to pour some water on the market's fire. The marginal change from gasoline -- in the form of ZIRP, QE1/QE2/QE3 and all sorts of other horrible acronyms -- to water is going to be huge, even if the immediate impact to the U.S economy of a 25-basis point hike is not.

Again, my focus is on individuals, and I always give this piece of advice to those invested via 401(k)'s. If you have a 100% equity exposure in your 401(k) (and I have seen so many who do), you've been increasing your cost basis as the market has steadily risen. No one pays attention to the economic depletion caused by consistently "averaging up" until the monthly balances begin to decline.

Yes, that does happen, and to be prepared for that, you should have a significant part -- I would recommend more than half -- of your portfolio allocated to non-equity investments.

How does one profitably move into fixed income in an environment of rising interest rates? That's the key question. My strategy involves swimming upstream from conventional wisdom, but at least we're not holding all stocks and thereby fighting a Fed that's going to move from easing to tightening.

So those risks have to be balanced, and it's certainly not easy. That's why I charge a fee for my asset management services. Ha!

Seriously, though, I'm out of room here, but in my next column I'll have several specific tactical steps that you should be taking if you share my market outlook for the rest of 2015 and 2016.

At the time of publication, Collins had no positions in the stocks mentioned.