Professional investors share tips for 2011For investors, 2010 was like a drive on "quease control." With so many dips and bumps, it wasn't always easy to stomach. To get a sense of what's likely ahead in 2011, we asked a handful of financial advisers for their financial forecasts.
By: Claudia Buck, McClatchy Newspapers
SACRAMENTO, Calif. — For investors, 2010 was like a drive on "quease control." With so many dips and bumps, it wasn't always easy to stomach.
To get a sense of what's likely ahead in 2011, we asked a handful of financial advisers for their financial forecasts.
The four are:
—Tony Bell, financial adviser at Morgan Stanley Smith Barney, Sacramento;
—Patrick Gainer, senior vice president of investments at Wells Fargo Advisors, Roseville, Calif.;
—Gregory Lucas, certified financial planner at Lucas Group Financial Planners Inc., Sacramento;
—Laura Pajak, certified financial planner at Foord, Van Bruggen, Ebersole & Pajak in Sacramento.
Here's a roundup of their comments:
QUESTION: Investors saw 2010 end on a high note, with the Dow and S&P both up double digits. But between May's "flash crash" and other upsets, it was a rocky ride. What's your projection for 2011?
GAINER: It's not going to be a straight line, but the stock market is expected to be at much more attractive levels by year's end. The S&P could be closer to 1,400; the Dow somewhere around 13,000. There is pent-up demand in the economy after several years of restrained spending. With the stock market up and 401(k) balances increasing year over year, investors are gaining confidence.
LUCAS: Most likely it will be a bull market. Stocks today are valued at 12.5 times their estimated earnings. Corporate health is good. Companies are holding large cash reserves. This spring, earnings are poised to bloom if consumers return to long-postponed purchases, everything from tires to clothes. Best of all, many stocks offer a better current yield than a savings account, with the added benefit of potential appreciation.
BELL: We have a positive outlook on the S&P and Dow Jones for the year. We expect the U.S. recovery to gather strength in 2011. While periodic setbacks are likely, the recovery should boost confidence in private markets and depress "fear trades" like Treasuries. Consumer confidence will pick up steam. Unemployment is still high, but even if you're unemployed, you can still earn. Many still have a 401(k), investment accounts, IRAs and other hard assets like real estate.
Q: Any particular sectors that investors should pay attention to — or avoid?
GAINER: Health care, definitely. ... Specifically, products and services tied to an aging population: acute care, surgeries, etc. As well as day-to-day products that we all consume, necessities vs. luxuries. ... Also, if you're seeing a stock with a 2.5 percent dividend or better, that's higher than you'll get with a 3-year CD. Even if the stock remains flat, you'll get a better yield than if you left it in a CD or money market.
LUCAS: Income investors should take some bonds off the table. Trade them for dividend-paying real estate investment trusts (REITs), utilities and a diversified mix of financial mutual funds. Growth investors should take a fresh look at what's working. The last 39 months revealed which investments stood above the rest. Go with funds that managed well through the downturn.
BELL: Most risk assets — equities, corporate bonds, REITs and commodities — will do quite well over the next year, compared to most safe-haven asset classes such as cash and government (bond) debt. As a result, we overweight global equities (especially Brazil, Russia, India and China) ... and underweight government bonds and cash.
Q: Any investment strategies you'd recommend?
GAINER: Don't be chasing "hot dots." ... Don't invest in the rearview mirror. Diversify your portfolio into undervalued sectors: small and midcap companies, some emerging markets, high-quality international companies. ... Interest rates are creeping up again. If you're holding Treasuries and corporate bonds, keep them at as low maturities as possible. ... You may want to take some profits from your bonds.
BELL: Investment strategies are predicated on understanding your goals and your current financial situation. Understand which buckets of funds will go to which goals. If you're planning on retiring at 60, but living to 90, you need to plan for that. What are your projected life events? Buying a second home? Long-term care? ... Plan so that you're solely responsible for funding your own retirement.
LUCAS: Take a fresh inventory of key milestones, like retirement and college. Check if you are advancing toward your goals. Revisit the power of long-term investing (compound interest and reinvesting dividends). Don't over-concentrate in areas, but diversify across sectors and let the market do its amazing work.
PAJAK: Review your retirement projections. Everyone who was heading for a certain goal prior to 2008 got shaken up. Run some retirement projections, either with your financial adviser or on websites like AARP.org. ... Investment values are up from their lows, so it's a good time to take stock of where you are. If you've been adding to a 401(k) or reinvesting dividends the last three years, you may be better off than you think.
Q: Gold and silver hit some historic highs last year. Will that trajectory continue or settle back down?
LUCAS: I don't know, but if I had a lot in gold, I wouldn't rest easy. Today's record prices appear to be attracting more sellers.
PAJAK: I don't advise buying a bunch of Krugerrands and stowing them under the bed. Get a gold ETF (exchange-traded fund) or a mutual fund that invests in gold mining companies, gold bullion or gold futures.
GAINER: Precious metals have a place, especially as a component of manufacturing in emerging markets like China, but I don't see them as an investment opportunity. Gold and silver prices are too lofty to give the rate of return they have the past few years.
Q: New Year's resolutions?
PAJAK: Figure out your net worth. January is a good time because all your financial year-end statements are starting to arrive in the mail. Add up all your assets (savings, retirement accounts, home value, vehicles, etc.) and subtract your debts (mortgage, car loan, credit cards).
It's a vital scorecard. From your net worth, do a review. Are assets registered correctly (i.e. in a family trust)? Are beneficiary designations accurate on life insurance and retirement plans? If you have too many accounts, can you consolidate? This exercise can produce clarity and confidence about your finances.
GAINER: Everyone needs to revisit their 401(k) plan and really drill down. If there's a dollar-for-dollar match from your company, take full advantage. If your plan has website calculators, explore those. Check if there's an automatic rebalancing function, so you can harvest profits (in top-performing funds) and reinvest in undervalued categories.
Q: Final tips for 2011?
PAJAK: Pay off the home mortgage, if you can. If you refinance, don't extend the mortgage term. Keep the monthly payments similar, but make it a shorter term (i.e. 20 years, instead of 30). ... If you don't have that mortgage payment in retirement, it's one less thing to worry about.
LUCAS: Don't overmanage your money. Invest monthly, review annually.