Where To Invest For The Next 5 Years

With u.s. equities markets as volatile as ever, where do you go to find growth before the end of this decade? Our expert panelof money managers tells you what will be hot in 2010.

funds start to scale back their allocation in bonds and move more into stocks if interest rates are rising? Or should they be more selective with the type of bond funds and stocks they choose?

Johnson: A little bit of both. I recommend reducing your risk profile, and to do that, you need to build some diversification into your portfolio. When you think of bond returns, there are two components: price appreciation and income. The market conditions that we are going into will see income as the more important component of your total return. So, as an individual investor, you want to build more income and have more diversification and more exposure to various sectors in your portfolio, and I would include international exposure.

Phelps: Any significant move in the 10-year Treasury bill, upward to 4.75% or 5%, will have a big impact on the consumer. I believe such a move will have an impact on mortgages at some point. If that happens, and I’m not saying it is going to happen, be wary.

One other thing to watch for is if we start seeing large-scale, negative pre-announcements of company earnings coming through on a consistent basis, not just in one quarter, but in consecutive quarters. That may be a sign of market deterioration.

Payne: If you take your cue from the man and woman on the street, you’ll see what the economy is doing and whether it’s right to get aggressive in the stock market. A lot of that is based on job growth and job duration, and people sort of feel it. They don’t have to get information from the Department of Commerce. They know Fred is working now, Bill is working now, Bob finally got a job. People sort of have an intuitive feel about the economy.

It’s sort of like the Peter Lynch strategy–buy what you know. Instead of making it complicated, you know that there are certain types of businesses or products that you and your friends like. Start to investigate those areas, and believe it or not, you probably can put together a portfolio that could beat just about any portfolio on the street.

Johnson: Right. The consumer, which is two-thirds of the economy, knows what he likes. For instance, people know they like the Whole Foods company. They go to that supermarket and they enjoy the experience. The thing is to know that you like something and everybody else likes it. Every day, we interact with incredible investment opportunities. Bottled water is going through the roof. Instead of doing things that are steady and growing, we want to buy something that is going to revolutionize the world and make a million dollars overnight.

Alston Paige: I would counter that a little. I think most people can pick good stocks. But I think the most important thing for people who are setting up their own portfolios is diversification. You have to have representation across all sectors. That’s the only way to consistently mitigate risk. Consumers know what they use, what

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