With gold headed back toward its highest level in decades, why are so many gold fund managers holding so much cash?

Take Frank Holmes, chief investment officer at U.S. Global Investors in San Antonio. His $250 million Gold Shares (USERX) held 16.4% in cash as of Dec. 31, while the $1 billion World Precious Minerals (UNWPX) had 14.5% of its assets in cash at year's end.

While it might seem like a fund with that much money on the sidelines would have missed out on gold's rally of 20% from its low of around $560 an ounce last October, Holmes says it has provided much needed flexibility.

"What happens is that when the stocks really get clobbered, I have the money to buy them," the fund manager says.

A common mistake people make is to balance their 401(k) and to make certain it's diversified among various asset classes," says Gary Schatsky, an attorney, CPA and former chairman of the National Association of Personal Financial Advisors. "It does not need to be balanced. Your investments do."

That means if you have some money to invest outside your 401(k), you can put it to work in the foreign stock fund of your choice and use the money inside your 401(k) plan to get exposure to other asset classes.

Ideally, you can purchase the investments that aren't available in your 401(k) through another kind of tax-deferred account, such as an individual retirement account, to maximize the effect of compounding returns."

One thing to keep in mind when you're looking at your total portfolio is that different kinds of investment returns are taxed at different rates. Interest and short-term capital gains are taxed at rates as high as 35%, depending on an investor's income. But most investors pay 15% on qualified dividends and on long-term capital gains, or the appreciation on an investment held for more than a year.

So it makes sense to put investments that generate the biggest tax bills, such as taxable bond funds or funds that turn over their stock holdings frequently, in tax-deferred accounts.

To some extent, holding two or more similarly managed funds holding like but not identical stocks (i.e. large cap Canadian) could be considered simply as an exercise in diversification, but it doesn't take long before portfolio dilution (or "di-worsification") kicks in. This is where the portfolio risks becoming more index-like but with active management fees. That will doom any portfolio to long-term underperformance.

The industry's bloated line-up of products is to blame. If we look at the entire fund industry as one gigantic portfolio, Canadians are holding hundreds and hundreds of unique funds just to invest in Canadian stocks. I would never recommend that any investor spread money among hundreds of funds -- particularly in such a small asset class. And I have opined in the past that at least 90% of funds are probably not worthy of investors' dollars. Accordingly, investors in aggregate are bound to underperform.

Diversification is a critical component of sound portfolio construction. Investors must strike the delicate balance of having sufficient diversification (to reduce reliance on any one stock) with the need to stay focused enough to make active management worth paying for. Dilution (or excessive diversification) can result in an expensive, index-like portfolio. Too focused a portfolio can incur too much risk (making success more uncertain)."

I don't think the wheels are falling off at Fidelity. But plainly some mid-course corrections are in order for the huge revamping of the stockpicking operation that Fidelity launched 18 months ago. Someone high up at Fidelity may -- or may not -- agree. Stephen Jonas, who headed that restructuring, retired at the end of January. Bob Reynolds, Fidelity's chief operating officer, says Jonas, 53, wanted to spend more time with his family and that he and Jonas "came to a mutual agreement that this was a good jumping off point. Performance had nothing to do with it." Maybe so.

Longer-term performance at Fidelity hasn't been awful, but those of us old enough to remember when Peter Lynch turned Fidelity Magellan into the most famous fund in the land do long for the good old days. Over the past three, five and ten years, Fidelity's average U.S. diversified fund ranks above average -- in the 40th to 42nd percentile over each period. The trend at Fidelity's foreign funds has been disturbing. Over the past ten years, they're in the top 32% of diversified overseas funds. Over the past five years, they're in the top 40%. But over the past three years, they rank in the 73rd percentile (or the bottom 27%)."

Survey after survey shows a heavy majority of people say they will not have enough to live on when they retire. Yet less than half of them say they are putting money into an IRA. Why not? The clock is ticking, and the day of reckoning is coming.

You do not have to contribute money in one lump sum, nor do you have to contribute the maximum amount allowed.

You can put in as little as you want, a tiny amount, if that is all you can afford. You just cannot exceed the annual maximum, which is now $4,000 (or $5,000 for people 50 or older). You can budget it to make a monthly contribution, if that makes it easier on your checkbook.

Don't let the rules on tax deductions sway you against contributing. Many people won't contribute because they don't qualify for a tax deduction. They may already be in another qualified retirement plan, their income is above the deduction threshold or they chose a Roth IRA.

(The Roth IRA, you may recall, is not tax deductible, but all earnings are completely tax-free.)

A tax deduction should not be the main reason you consider putting money into an IRA. You are saving money, and it grows without any current tax liability. The idea is to build a nest egg for the future.

People often ask me whether they can contribute to both an IRA and a 401(k). Yes, you can put money into both."

Many industry observers have predicted 2007 would be the year the ETF marketplace sees its first truly actively managed products. The earliest ETFs tracked recognizable, plain-vanilla indexes such as the S&P 500.

However, more firms entering the ETF business are launching products on increasingly complex indexes that, arguably, already incorporate elements of active portfolio management. "

The first explosive device was found by an employee in an investment firm's mail room in Kansas City. The package contained a pipe bomb.

The second bomb was sent to Janus Capitol Group in Denver, but was rerouted to Chicago. Neither bomb exploded.

"This case is our top priority. We are very serious about solving this case. We put all of our top people on this investigation," said postal Inspector Paul Trimbur.

The person responsible for the bombs has identified himself as "The Bishop." He may be linked to other threatening letters sent to financial institutions over the past 18 months, officials said."

Share The Wealth…And The Losses: Janus Olympus

Olympus merged with Janus Orion (JORNX), bringing with it billions in tax-loss carry-forwards from the tech crash. Now slightly less unfortunate Orion shareholders get to benefit from these Olympus losses. (The portfolio manager can realize gains and wipe them out with losses to minimize year end taxable distributions to shareholders). Both fund shareholders are now in a bigger fund that’s slightly more difficult to manage. What about fees? They remain the same. Chalk up one more tech-wreck track record swept under the rug. It’s win-win…for Janus.

First, a traditional IRA has the potential to grow tax deferred, while Roth IRA earnings have the potential to grow completely tax free, provided you've had your account for at least five years and you don't begin taking withdrawals until you're 59-1/2.

And second, contributions to a traditional IRA may be tax deductible (depending on your income and whether you or your spouse have access to an employer-sponsored retirement plan), while Roth IRA contributions are never deductible.

On the other hand, the traditional and Roth IRAs share some things in common. Both have the same contribution limits ($4,000 in 2007, or $5,000 in 2007 if you're 50 or older) and both can be funded annually with virtually any type of investment - stocks, bonds, Certificates of Deposit."