Forecast ’99

What are the best financial moves to make this year? Here's a look at key investments to build wealth while buffering market bumps.

rates down, there’ll be a rush to refinance. I also think Fidelity’s Select Home Finance mutual fund will do well in this climate."

Bolton expects small caps to rebound so he favors keeping a portion of your portfolio in mutual funds holding

small companies. "My picks here are T. Rowe Price Small-Cap Stock Fund, Managers Special Equity and Baron Small Cap. The small-cap market is very volatile so you should dollar-cost average when you invest new money." That is, if you’re going to be investing, say, $6,000 in small caps, you might want to start out by investing the minimum purchase price ($2,000 for Managers Special Equity, for example), then gradually invest the balance over the next four to six months. If the market drops the day after your initial purchase, your subsequent outlays will buy more shares at lower prices.

Foreign stocks. International markets have sandbagged investors recently, but financial pros advise investors to sprinkle a few dollars around the world. "You need some overseas exposure in your portfolio," says Peace. Although he thinks Asian stocks will rebound eventually, for now Peace thinks Europe has the greatest potential, a sentiment echoed by McEvilley and Haywood.

"Europe is about where the U.S. was in 1994," says Haywood. "It’s coming out of a period of slow growth. I expect European markets to accelerate in the next few years, just as U.S. stocks did in 1995-97."

However, Fields says investors should buy international stocks cautiously. "American investors don’t know these companies well and it’s hard to know how much confidence you should have in their financial reporting." Rather than try to decipher foreign accounting practices, you may prefer to put your faith in a mutual fund’s portfolio manager.

Peace likes Nicholas/Applegate International Small-Cap Growth Portfolio and Putnam International Growth Fund, which have held up relatively well in difficult times. Bolton, too, suggests investing in international stocks through mutual funds with a good record of investing overseas. His picks: Lazard International Equity Portfolio, T. Rowe Price International Stock Fund and Vanguard International Growth Portfolio.

Investors looking for individual foreign companies face a challenge. "Outside of the U.S.," says Shote, "it’s even more important to buy well-known companies such as Daimler-Chrysler and Glaxo because it’s harder to tell how foreign companies are really doing. Even though I don’t think you should invest in Japan now, I would recommend Toyota and Sony, which get two-thirds of their income outside of Japan."

Bonds. McEvilley says that investors "should fill their bond piece first," when they’re putting together a portfolio in 1999, which may be a volatile year for financial markets. "Treasuries are the safest place to go." Indeed, Treasury bonds were a safe haven for investors during the summer of 1998 (see "Betting On Bonds" chart).

Bolton agrees that investors should hold substantial amounts of bonds in this climate. "My model portfolio includes nearly 40% in bonds now. Of those bonds, your basic holding

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