If you have an investment portfolio (like in a 401k plan), look at it because it might not be the best investment portfolio for 2014 and beyond. If you are a new investor, don’t start investing money until you are familiar with the best funds to include in your portfolio in 2014.

Your investment portfolio is simply a list showing where your money is. For most average investors, it consists primarily of mutual funds: stock funds, bond funds, and money market funds. Here, we discuss the best funds and asset allocation to achieve the best investment portfolio if 2014 and beyond become a tough environment for investors. You may need to make changes in your existing portfolio and be aware of the following as a new investor before you start investing money.

As an investor, you should periodically receive statements showing you where your money is. The problem is that many investors do not give these statements, which clearly show you your asset allocation and investment portfolio, the attention they deserve. That can be a problem. For example, if you had 50% of your portfolio allocated to stock funds in early 2009, you could now have two-thirds of your money in these funds. If the stock market takes a big hit, you stand to take a big loss. First, look at stock funds and the best funds for investing money there.

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The stock market and many diversified stock funds have increased by about 150% in less than five years, and numerous financial analysts expected a correction (stock prices to go DOWN) in 2014. If your investment portfolio shows that more than half of your assets are invested in stock funds, consider cutting back to 50% or less. If you are a new investor ready to start investing, allocate no more than 50% to diversified stock funds. The best funds: those that invest in high-quality, dividend-paying stocks vs. growth funds that pay little in the form of dividends. This is your first step in putting together the best investment portfolio for 2014 because it cuts your potential losses.

The best investment portfolio also includes bond funds, which have been good solid investments for over 30 years. Why? Interest rates have been falling, which sends bond prices and bond fund values higher. Problem: Interest rates have hit all-time lows and appear to be heading higher. Higher interest rates create losses for bond fund investors. Many investors have an investment portfolio loaded with bond funds and are unaware of the risk involved if rates increase. If you are getting ready to start investing money, you must also know this. When interest rates go UP, bonds and bond fund values go DOWN. That’s about the only iron-clad rule in the investment world.

Allocate no more than 25% to 30% of your total investment portfolio to bond funds to cut your risk. The best bond funds are categorized as intermediate-term funds, where the fund’s investment portfolio invests in bonds that mature (on average) in 5 to 10 years. These are the best funds now because they pay a respectable dividend with only moderate risk. The worst funds to hold now are long-term bonds maturing (on average) in 15, 20 years, or more. When you review your investment portfolio, eliminate these because they will be big losers if (when) interest rates shoot upward. New investors who want to start investing money: avoid them and allocate about 25% of your money to intermediate-term bond funds to avert heavy risk.

Sometimes, the best investment portfolio is loaded with aggressive stock funds and includes longer-term bond funds. Looking at 2014 and beyond, it is probably not one of those times. For many years now, losses in stock funds have been offset by gains in bond funds. Today, investors’ problem is that even the best funds of both varieties could get hit if the economy falters and interest rates rise significantly. That makes investing money today a real challenge that few investors are prepared for.

So, let’s say that you start investing money with less than 50% going to the best funds in the stock department and about 25% allocated to the best funds in the bond universe… or you adjust your existing investment portfolio to these levels… where do you invest the rest of it? Even though interest rates are historically low, you bite the bullet and invest it for safety to earn interest. In a 401k plan, your best safe investment is likely the stable account if your project has one. Otherwise, the best fund for safety is a money market fund (even though they presently pay almost no interest). When rates go up, they should pay more. Or you can shop the banks for the best rates on short-term CDs or savings accounts.

I expect that 2014 and beyond will be challenging to start investing money or manage an existing investment portfolio. On the other hand, now you should have a handle on the best funds to consider when putting together the best investment portfolio possible. Remember, you must stay in the game to get ahead over the long term, but sometimes moderation is your best course of action.