Mmagical Millennium Tour

Cautious optimism guides this year's journey into investments and the economy

investment trusts (REITs).

He’s particularly upbeat about REITs. As long as the economy keeps growing, properties will produce substantial rental income and REITs will pay high yields to investors. But for investors interested in risky sectors, Bolton advises buying mutual funds instead of individual stocks.

Burks says that investors should consider mutual funds for all types of stocks, not just volatile ones. “Even with a strong market, most individual investors lose money because they don’t take the time to educate themselves. Therefore, I usually recommend investing through mutual funds,” he says. Burks advises a mix of large- and small-cap funds, including value and growth styles, tailored to your goals. He says investors should look for mutual funds with good 10-year track records.

Mutual funds might be especially helpful outside the U.S., where it’s difficult to research individual stocks. Okomo says that international stocks may do well, especially those in Europe and Latin America, but he would hold off until after the first quarter, when foreign countries will have had the time to iron out any Y2K problems.

Okomo likes Janus Worldwide’s management style because the fund has outperformed other international funds. For example, in 1998 it returned 25.87%, far ahead of the 12.16% garnered by all funds in that category, according to Morningstar. He also is upbeat about Janus’ research capabilities.

Be especially careful about selling your winning investments if the market turns down, Bolton advises. By selling stocks that have appreciated sharply, you’ll incur hefty capital gains taxes. Selling them, and paying taxes, is similar to suffering a correction of up to 20% in the share price, he says.

With interest rates likely to stay flat or increase, the bond market may be treacherous in 2000-as it has been in 1999-so our panel is generally cautious. “The bond market is likely to suffer from excessive concerns about the Fed’s interest rate moves,” says Rodgers. “Short rates may move higher if the Fed keeps tightening while long-term bonds may stay in a trading range,” with the yield on the 30-year Treasury bond likely to fluctuate between 5.5% and 6.25%. “Altogether, investors should stay in the intermediate sector of the bond market.”

Eley suggests investors should buy bonds maturing in three years or fewer. “If you go longer, you won’t receive enough extra yield to justify the extra risk,” he says. “I’d stay with government bonds. Corporations may run into difficulties making bond interest payments if the economy slows down.”

Burks, although more upbeat on bonds, also advises a conservative stance. “With rates up from a year ago, I think there are some good values now,” he says, so he suggests locking in higher yields by purchasing U.S. Treasuries and investment-grade corporate bonds.

Bolton is the most aggressive on the fixed-income market, predicting that Y2K may provide buying opportunities in bonds as well as stocks. “At the end of 1999 and the beginning
of 2000,” he says, “there probably will be a flight to quality as investors sell junk bonds

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