Best Investment Strategy And Asset Allocation Guide For 2010 - Cash, Stocks Or Bonds

By BrentBarett

The best investment strategy for this year 2010 will be different from the traditional investment and asset allocation strategy recommended previously by many investment brokers. Due to the faster changing markets, the best way to diversify your investments will be different from now onwards. Here are some basic investment guide on how to maximize your returns going forward.

You are probably familiar with the 40-60 balanced investment asset allocation recommended for most people, that is to put 60% of your investment money in high risk stocks and the remaining 40% into low risk bonds. Stocks and mutual funds are usually invested for high growth opportunities while bonds provide some stable income to offset the overall portfolio risks.

Balance Your Investment Asset Allocation

In theory, this asset allocation strategy allows any temporal losses in the stock investments to be compensated by the guaranteed gains in bonds income. Nevertheless, it is important to periodically review your current investment asset allocations to adjust according to your risk profile and financial goals.

If you have not reviewed your investment strategy and asset allocation, it could has changed dramatically because of the fast changing markets. It may have shifted into a 80% stocks / 20% bonds portfolio in terms of monetary value before you even realized it. Arrange for a session with your financial planner and decide whether you need to make any adjustment according to your current financial goals and risk appetite. If you are overly heavy into stocks or bonds, you might want to diversify in preparation for the fast changing 2010 investment landscape.

For people that wanted a more aggressive and risk taking investment strategy in order to get higher returns in 2010, sometimes the best asset allocation guide lines is still to incorporate some defensive elements such as cash and bonds. The stock market is already up by 50% in just 6 months while the bond prices also remain high due to the low interest rates. Gold prices is still continually breaking historically high levels, and many investors are pouring into emerging stock markets such as Vietnam and China.

There are many questions on the minds of investors worldwide. Is the financial crisis really over? When will the U.S. dollar stabilize to 2006 levels? Can economic growth be attained or dampened by further interest rates corrections etc? The world has not experienced more severe economic uncertainty since the 1940s and probably the best investment guide to ride out the uncertainty period and avoid making losses will be as follows.

Bonds Investment Strategy For 2010

If you are holding bonds and related funds, try to short your maturities and limit your exposure because when interest rates continue to rise, bond prices will nose dive and especially long term bonds will suffer the most. If you are holding long-term bonds, consider switching to short term and intermediate term bond funds instead. For sacrificing a little interest income, you can protect yourself from heavy losses with this allocation strategy.
Which Stocks And Mutual Funds To Buy In 2010

On the other hand, many feel that stocks and stock mutual funds have actually appreciated way too fast since 2009 and possibly due to heavy speculation. Most of these upward movements are due to larger portfolio fund managers that wanted to report in a higher return at year end 2009 as well as a large number of individual investors that are looking for to make higher returns compared to the low interest rates. Any slight unfavorable market news in 2010 can easily trigger panic selling by these investors and send stock prices down again. If you are holding a lot of stocks and funds, diversify your stock portfolio to those that closely track the market movements.
Investing In Money Market Mutual Funds

Do not forget about your cash assets parked in safe and highly liquid investments such as bank savings accounts, short term CDs (certificate of deposit), and money market securities etc. If you have lighten your asset allocation in stocks and bonds investments after a portfolio adjustment, consider holding money market mutual funds which is the best way to invest in money market securities for average investors. However, due to the low short term interest rates, many investors are not interest in these relatively safer investments.

In particular for 2010, prudent investors should not follow the herd in these times of high market uncertainty. Your best investment strategy is to safeguard your financial investment with a well thought out asset allocation balanced in stocks, bonds and cash money market securities. Meanwhile, keep more cash in liquid assets and diversify the entire portfolio. When you become more sure of the investment environment again, you can progressive get more aggressive with stock investments.

How Treasury Money Market Funds Work




From Hub Pages

5 great investments that aren't stocks

The urge to steer clear of the volatile market is understandable. Alternatives such as junk bonds and commodities are not without risk, but they may offer calmer rides.

By Catherine Holahan
MSN Money

Now is the time to buy stocks -- if you're Warren Buffett, with his iron stomach, ability to score deals and billions in the bank. But you're not Buffett. And you're shying away from stocks until a ride on the Dow industrials ($INDU) feels a bit less like a roller coaster.

So, what do you do with your money in the interim?

Treasury bills are unattractive. The 2.78% annual return on 10-year Treasurys likely won't keep pace with inflation, which was nearly 4% last year.

And, though real estate may look cheap right now, it is still a very risky business, given the amount of unsold homes out there.

MSN Money asked money managers and found five nonstock investments that seem attractive. Mind you, just because these investments are not stocks doesn't mean they're without risk. Yet they look like stable bets compared with stocks, which have set records for volatility in recent months.

Buy junk

Bonds seem less risky than equities at the moment. Bond investors can be wiped out if a company goes bankrupt, but they're paid, before stockholders, a share of whatever assets remain. Bonds don't have the potential to exponentially increase returns like stocks, but few stocks seem capable of delivering significant gains this year.

High-yield bonds -- aka junk -- offer the most potential. Many investors have fled junk bonds because they have a greater risk of default than higher-rated bonds, but junk also offers a potentially higher rate of return.

Even some blue-chip companies considered to have a much lower risk of default declared bankruptcy, so why buy bonds of companies known to have a high risk of default? After all, the default rate for high-yield bonds is already 10%, and bond rating agency Fitch Ratings anticipates it could rise as high as 18% this year.

Because the credit crunch has also made it more difficult for companies to issue bonds of any sort, as investors have shied away from risk. As a result, junk-bond prices -- which fall as yields on those bonds rise -- look artificially depressed, and individual investors are starting to notice.

"A very high proportion of the high-yield market is already trading at distressed levels," says Mariarosa Verde, a Fitch analyst. "Some investors may find the risk-reward balance attractive at this point."

Investors have poured nearly $3.5 billion into junk bonds since the beginning of 2009, according to EPFR Global, which tracks the market for funds trading in that $850 billion sector.

"I think people are scared, and they figure, 'Why be greedy and buy the equity and take huge risk?'" said Zachary Cooper, a portfolio manager in New York who specializes in fixed income. "People believe they are getting a historically equitylike yield in junk bonds and taking less risk."

Of all junk bonds, high-yield municipal bonds appear most promising, certified financial planner Andrew Horowitz says. Municipalities across the country have issued bonds because their tax revenues are down, in part, due to mortgage defaults. The $787 billion federal stimulus package should give these local governments an infusion of cash, making defaults on these bonds less likely.

For investors who don't want to pick through the trash of individual junk bonds, exchange-traded funds holding high-yield bonds are another opportunity. ETFs are funds that track a particular index or sector and are popular partly because they can give investors the ability to trade a group of different companies' shares as if they were a single stock.

This month, Van Eck Global of New York launched the Market Vectors High-Yield Municipal Index ETF (HYD, news, msgs), pegged to the performance of the Barclays Capital Municipal Custom High Yield Composite Index. About a fourth of the index is made up of investment-grade triple-B bonds. The other three-fourths are composed of non-investment-grade bonds.

Buy food

No matter how low the market goes, people have to eat. That is Horowitz's motto and one reason he's looking at the commodity markets.

"Nibbling on this kind of investment is an interesting play," Horowitz says. "A stock can go out of business; you can't do the same thing to a commodity. You can't bankrupt a commodity. People have to eat. That is the bottom line."

Last summer's spike in oil prices and the enthusiasm for biofuels sent prices of commodities such as corn, rice and soy skyrocketing in June and July. Then they crashed. Americans' grocery bills, however, didn't drop in tandem. Food prices ended the year up 5.8%, according to the Bureau of Labor Statistics' Consumer Price Index.

Higher food prices coupled with steady demand should ultimately lead to a strong market for agricultural commodities, Horowitz says. One ETF in this area he likes is the PowerShares DB Commodity Index Tracking Fund (DBC, news, msgs).

Buy money

The recently approved $787 billion stimulus package and the massive bailouts by governments across Europe and Asia would caution against buying currencies. Printing all that money, after all, has to be inflationary. Right?

Yes. But the worth of any currency is relative.

As long as the same inflationary pressures are at play the world over, it doesn't matter that the dollar will eventually be worth less -- as long as the values of the British pound, the Japanese yen or the European Union's euro have similarly declined.

Of course, inflation won't ultimately affect all currencies in the same way. Some countries have promised to sell more debt and print more money than others. The key is to bet on -- or against -- the right currency.

Horowitz is betting against the euro. He believes the multitude of countries that decide the monetary policies underpinning the euro's value will make the currency difficult to stabilize. As a result, he likes Market Vectors Double Short Euro (DRR, news, msgs), an exchange-traded note (similar to an ETF) that gains 2% for every 1% decline in the euro's value relative to the dollar. It also, importantly, loses twice as much for every gain in the euro's value.

Bet against Treasurys

It may seem counterintuitive to both bet on the dollar and against Treasurys. But making both moves is a way to hedge. That reduces your risk by giving you a way to make money when the dollar goes up or down (yet limits your upside, too). And reducing risk is one of the main reasons not to be in the stock market now. Right?

Likely, the dollar will strengthen in the short term, making Treasurys more palatable. But the dollar will weaken in the long run as investors' appetite for risk gradually returns. As the dollar's value decreases, Treasurys become less attractive. Hedging allows you to avoid having to call the moment when the dollar's transition will happen.

When the dollar does start weakening, investors will stop hoarding Treasurys and buy something -- anything -- capable of at least beating inflation. That's the argument for buying an ETF that gains as Treasury prices fall.

The argument for a weak dollar is made stronger by the huge federal stimulus package. Pumping all that money into the economy should fuel inflation, especially if the stimulus succeeds in spurring business and consumer spending as well as government largesse. The more inflation rises, the more people will want an asset capable of at least retaining their money's value. That makes Treasurys, with the current yields, even less attractive.

One short ETF, ProShares UltraShort 20+ Year Treasury (TBT, news, msgs), has risen 27% since a Dec. 30 low of $35.85 a share. The ETF is structured to go up twice the amount that the Lehman Bros. 20+ Year U.S. Treasury index goes down each day.
Keep cash
Here's a twist on a Wall Street adage: When there's blood in the streets, stuff your money in your mattress.

As depressing as that may sound, it's the mantra of many now-risk-averse investors. And as long as people are getting out of the market -- and staying out -- cash will be king.

That said, you needn't keep your money in a low-interest savings account. Money market accounts have higher interest rates and the same Federal Deposit Insurance Corp. protection as your average savings account.

Rates of return for most money market accounts, however, still don't beat last year's inflation rate of 3.85%. Some of the best ones offer just 2.5%, according to Bankrate.com, which tracks the rates offered by different banks across the country.

That rate is good as long as inflation remains near zero -- where it was in January -- or reverses course. But it's pretty awful if inflation returns the near 3% rate that has been the norm in the past decade.

In addition, unlike a plain old savings account, money market accounts don't let investors easily move their money into more-attractive arenas.

Still, with a money market account, you're not locked in for as long a period as, say, a 10-year Treasury bond. Most funds let you make several withdrawals a month.

At the time of publication, Catherine Holahan owned shares of the following exchange-traded fund mentioned in this article: ProShares UltraShort 20+ Year Treasury.


From MSN Central published on 2/27/2009 12:01 AM ET

Jim Rogers Sees Bond Market Bubble Developing

Published: Friday, 2 Jul 2010 | 3:35 AM ET
By: Antonia Oprita
Web Producer, CNBC.com

Bond markets are a bubble waiting to burst because the world economy is facing even worse problems after central banks flooded markets with cash to try to get out of the crisis, famous investor Jim Rogers told CNBC Thursday.

On Wednesday, banks borrowed less money than markets expected from the European Central Bank, in what investors saw as a reassuring sign that Europe's banking system is not as weak as previously feared.

"I don't quite see that myself," Rogers said, adding that the problems are worse now than at the beginning of the crisis. "Markets are looking ahead to more difficulties."

And he said he does not see why investors look at bonds as safe havens.

"I'm watching the bond market, I have no longs and no shorts," Rogers said. "It is a bubble which is developing; it's one of the few bubbles in the world which is developing."

"I think it's going to be a disaster and I plan to be selling them short sometime in the foreseeable future," he added.

Some economists have been calling for more stimulus money to be poured into the economy, but Rogers said this would be bad as it would help only certain categories and will have to be paid for by others.

"The people who receive the money think things are better, and they are better for them, but the rest of us have to pay the price," he warned.

'We Have Inflation Now'

In the US, officials and pundits recently said the bailout of Fannie Mae and Freddie Mac may end up costing taxpayers $1 trillion.

Prices are creeping up all over the world but some governments "lie" about inflation, according to Rogers.

"We have inflation now. Everybody who shops knows there is inflation… prices are going up," he said.

The US and the UK are among governments who "lie" about inflation, while Australia, China and Norway – countries that tightened monetary policy – are facing up to it, he added.

"My investment outlook is I am long commodities and short stocks. I don't own stocks in any place at all," Rogers said.

Rogers later clarified in an email to CNBC that he owns some shares.

"I do own some stocks that I have had for years, but I have been shorting and am short stocks," he wrote in the email.

Geographically, he said he prefers assets in the countries that have the cash, rather than in the ones that have the debt.

"The creditor nations are all in Asia now … I'd rather be invested with the creditors than the debtors," Rogers said.

Food Prices Rising

Printing money has been good for hard assets and food prices "are going through the roof," he added.

"You should all become farmers. Agriculture's been a disaster for 30 years. We have a shortage of farmers now," Rogers said.

He said he is long the US dollar, despite the fact that there are huge negative feelings in the markets about the greenback and currencies are "suspect" everywhere.

"We now know that Greece is bankrupt. We know now that many companies and states in the US have been lying about their finances," Rogers said.

"Governments have poured huge amounts of money in the system… that money has to come from somewhere. This is not over yet. The debts have gone higher," he added.

The recent data on China showed signs of economic cooling as the central bank tightened policy.

"The Chinese government realizes they have problems in real estate and they're trying to solve these problems," he said.

But even though China's economy is in better shape than the euro zone and the US economies, the country can not pull the world out of recession, he added.



From CNBC published on Friday, 2 Jul 2010 | 3:35 AM ET