Happy New You! Our columnists share resolutions, aspirations and admonitions for a rewarding 2008.

Investors spent the latter half of this year getting reacquainted with hair-raising volatility in financial markets. And 2008 could mean more of the same. If you want to get your portfolio in shape -- or keep it in shape -- for whatever the new year brings, try these resolutions as a starting point:

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Surrender to the simple truth that it’s all about the mix.

Your portfolio asset mix, that is. Yes, you’ve heard this before, but that doesn’t make it any less true: The key to earning decent long-term investment returns, and limiting your overall risk of loss, is to have the proper asset allocation. That means being well-diversified in domestic stocks, foreign stocks, taxable and tax-free bonds, short-term cash accounts, real estate and other assets.

If you spread your money around, you have a good chance of always having something that’s working while decreasing your odds of losing a huge amount because some investment goes bad. The result will be a lot less stress on your mental health than if you make just a few big bets.

This sounds so simple. So why do so many people resist -- even when most 401(k) retirement programs offer an easy way to diversify?

Consider how things have gone in 2007. It has been a great year for many foreign stock markets, for U.S. government bonds and for gold, a middling year for the U.S. stock market and for tax-free municipal bonds, and a lousy year for junk bonds and for almost any investment tied to the U.S. housing or financial sectors.

What will the scoreboard look like for 2008? Who knows? And that’s the point. “The reason you diversify is because you don’t know what’s going to happen,� said Steven Klosterman, a fee-only financial advisor at Halbert Hargrove Group in San Diego.

If you can just admit that much to yourself, diversification becomes a no-brainer.

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To get the right mix, focus on rebalancing.

Year-end is always a good time to think about whether you have too much in some investment sectors and not enough in others. You can fix that by rebalancing: shifting money among sectors, or changing the level of contributions you make to different sectors within a 401(k) plan.

Just what is “too much� or “not enough� will depend on your personal preferences. But a good place to start is to look for gaps in your portfolio (i.e., you’re missing a major asset class) or for heavy overlap among investments, said Norman Boone, head of Mosaic Financial Partners in San Francisco, which manages $400 million for clients.

What is overlap? If you own three foreign-stock funds, but they all own the same types of shares, you aren’t diversified within the foreign sector.

Rebalancing often entails paring back on investments that have performed better than you expected, and increasing your stake in sectors that have been weakest in recent years.

In other words, buy low and sell high.

Case in point: For most of this decade, U.S. blue-chip stocks have lagged behind small-company shares. The Standard & Poor’s 500 index’s total return (price change plus dividends) since the end of 2002 is 84%, compared with a 114% return for the Russell 2,000 small-stock index.

This year, however, the S&P; 500 total return is 6.2%, while the Russell index return is a negative 0.8%.

If the tide is turning (as it always does, eventually), investors who have lost faith in U.S. blue chips after years of anemic performance may have too little in that sector compared with other sectors. And they may have more than they want now in smaller stocks. The solution may be to shift some cash away from smaller stocks and into bigger names.

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Think in terms of true returns rather than nominal returns.

Your true return on an investment is what you have left after inflation and taxes. Hence the maxim, “It’s not what you earn; it’s what you keep.�

It’s crucial to beat inflation in the long run because even a 3% annual inflation rate can devastate your buying power over 10 or 15 years.

That’s why Treasury inflation-protected securities, or TIPS, have a place in every portfolio, many financial advisors say. TIPS guarantee you’ll earn a set amount above the annual U.S. inflation rate as measured by the consumer price index. (An easy way to own TIPS is via mutual funds that invest in them.)

Tax-free municipal bonds also make sense as a building block for many portfolios. Say you have a choice between a fully taxable bond yielding 5.5% annual interest and a tax-free muni bond yielding 4%. If you’re a Californian in the 34.7% combined federal and state tax bracket, that 5.5% taxable return would be 3.6% after taxes -- so the muni bond would produce a higher true return.

And don’t forget that, at least for the time being, the maximum federal tax rate on long-term capital gains and on most dividend income is 15%. The 2008 election might lead to higher tax rates, but you may still have two years to take advantage of the 15% rate. That also means keeping more of what you earn.

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Watch the markets -- but don’t feel compelled to play them day to day.

Particularly when financial markets are volatile, as they’ve been in 2007, many people think they should be doing something significant to their portfolios.

Fight the urge -- at least if you’ve got a well-diversified investment mix and a long-term time horizon.

People have “a bias for action, and it’s just not a good bias when it comes to investing,� Klosterman said.

With money, leaving well enough alone often is great advice. Because the more you trade in and out, the greater the cost of running your portfolio in terms of commissions and taxes.

But should you keep up with what’s happening in the economy and on Wall Street? Of course -- and not only because you’ll help keep some journalists employed. Just think of it as a sporting event: It’s fun to keep score, but when you’re investing for a long season, remember that one inning, period or quarter is unlikely to make or break you.

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