Stern Advice: Where should you put your money in 2011?

By Linda Stern

WASHINGTON, Dec 29 (BestGrowthStock) – With all of the stimulus
coming from the Federal Reserve and the tax-cutting Congress,
2011 should be a banner year for the U.S. economy and your
money, right? Unless, of course, a double dip in housing, weak
state budgets and persistent lack of hiring dooms everything.

That’s the either/or scenario facing investors as they try
to decide where to deploy their resources in 2011. At every
turn, there are huge opportunities and frightening risks. That
leads to the obvious and ubiquitous disclaimer: Stick with your
long-term plan and your intended asset allocation.

But beyond that, there are some themes and issues that
could shed light on how investment markets will perform in
2011. Here are some thoughts and expert views:

* Calendar patterns suggest a good year for stocks. Since
1945, the stock market has risen 100 percent of the time when a
first-term President was in his third year, according to
Standard & Poor’s. (Since 1900, that figure is 81 percent.) The
average increase in those years since 1900 and 17.1 percent
since 1945. In addition, a stimulative monetary policy,
technical indicators and seasonal factors should all make the
beginning of 2011 a happy place to be in stocks.

* On the other hand, there are some bad signs, too. Those
presidential-cycle returns “will likely be moderated by the
aging of this bull market and the sluggishness of this economic
recovery,” says Hans Olsen, chief investment officer for J.P.
Morgan’s Private Wealth Management.

And Liz Ann Sonders, chief investment officer at Charles
Schwab (SCHW.N: ) & Co, though generally bullish on 2011, sees
the over-the-top enthusiasm now in evidence in the market as a
negative sign. “Every measure of sentiment that I track shows a
very elevated level of optimism. You always see a choppy phase
after that,” she said in a pre-holiday interview.

* Stocks are expected to perform better than bonds.
Interest rates across broad swaths of the bond market continue
to skirt historic lows, and that means they are far more likely
to flatten or rise than fall further. That will hit bond
prices, and especially prices of bonds with longer maturities.

“We recommend investors overweight equities, while
underweighting fixed income,” said S&P’s annual outlook
statement. The firm is advising investors to keep bond
weightings to 20 percent or less of their portfolio, and to
focus on shorter-term bonds.

* Bond market precautions are a good idea. “If you reach
for yield right now, what you’ll pull back is a bloody stump,”
says Olsen. “Treasuries, in particular, should come with a
health warning attached to them.”

Olsen suggests keeping your bond portfolio diversified and
avoiding the municipal bonds that are issued by one city or
local borrowing authority. Focus your municipal bond buying on
state general obligation bonds, he suggests.

* Think cyclical. If, as expected, the recovery continues,
those businesses that tend to do well in an expansive economy
should do well. That means industrials, information technology
and materials groups in particular, advises Sam Stovall of S&P.
The defensive sectors like health care and utilities? Not so
much, he says.

But James Swanson, chief investment strategist at MFS
Investment Management, thinks big dividend-paying companies
should also help investors over the next year.

* Foreign investments are still part of the picture. The
fervor over emerging market shares has been going on for a
while, but it’s not over yet, advises Bob Smith, manager of the
T. Rowe Price International Stock Fund. “We think this is a
great 10-year investment opportunity,” he said.

Emerging market economies should grow at a 6.4 percent
rate, more than double the U.S. growth rate, according to World
Bank projections. Europe and Japan still faces risks, but their
large cap stocks are below their 10-year averages, so selective
investments could pan out there, too.

(editing by Gunna Dickson)

Stern Advice: Where should you put your money in 2011?