Stocks have been sailing swiftly this year, but many investors missed the boat by clinging to defensive positions set in the depths of the downturn.
Rather than regret the lost opportunity, make sure your portfolio is prepared for 2010. That will likely mean putting money in places that already have enjoyed tremendous returns. Many experts caution that the global economy is anemic at best, and top-performing markets have come too far, too fast. Maybe these sprinters are due for a breather, but you can't ignore them.
"Don't be afraid of a weak recovery; that's not going to be a shock to anyone," says Alec Young, equity-market strategist at Standard & Poor's. "Don't be afraid of a weak consumer. The things that everyone's talking about don't move markets."
Here are five places to consider putting your money to make next year a good one:
1. Large U.S. stocks
Talk about a wall of worry. As stocks headed up this year, individual investors got out. In the five weeks through Oct. 16, investors pulled $15 billion from U.S. and international stock mutual funds -- and pumped almost $60 billion into less-risky bond funds.Investors are "missing the forest for the trees," Brian Belski, chief investment strategist at Oppenheimer Asset Management, wrote in an early October research report.
In the coming year, look to shares of large-cap U.S. companies with global reach and market leadership -- preferably those that offer a dividend greater than the 2% yield on the Standard & Poor's 500 Index ($INX). (A weak U.S. dollar boosts gains of companies with a foreign presence when overseas earnings are translated into U.S. currency.)
More from MSN Money and The Wall Street Journal
In industrials and technology, his picks include 3M (MMM, news, msgs), General Electric (GE, news, msgs), Google (GOOG, news, msgs), Apple (AAPL, news, msgs) and Hewlett-Packard (HPQ, news, msgs).
In the basic-materials sector, he likes an exchange-traded fund, Materials Select Sector SPDR (XLB, news, msgs). An ETF trades on an exchange like a stock.
Other dividend-focused ETFs to consider: SPDR S&P Dividend (SDY, news, msgs), iShares Dow Jones Select Dividend Index (DVY, news, msgs) and Vanguard Dividend Appreciation (VDAIX, news, msgs).
Mutual funds with a dividend focus include T. Rowe Price Equity Income (PRFDX) and Vanguard Dividend Growth (VDIGX).
2. International stocks
Both developed and emerging international markets have rebounded faster than the United States. The average Latin America fund, for example, is up more than 100% this year.Multinational companies in the S&P 500 offer plenty of international exposure, but foreign-market ETFs and mutual funds provide important global diversification.
Paul Nolte, director of investments at Hinsdale Associates in Hinsdale, Ill., keeps more than half of his clients' portfolios invested outside of the United States. "Opportunities are still better internationally," he says.
Nolte uses two ETFs: iShared MSCI EAFE Index (EFA) and and iShares MSCI Emerging Markets Index (EEM).
You also can consider Vanguard Total International Stock Index (VGTSX), Scout International (UMBWX) fund and Masters' Select International (MSILX) fund.
3. Energy stocks
"Long term, energy looks fantastic," says Craig Hodges, co-manager of the Hodges Fund. "We still haven't solved our problems from two summers ago when oil spiked to the $150 (a barrel) level. The next stop from here is probably $100."He likes oil companies including Exxon Mobil (XOM, news, msgs) and Brazil's Petrobras (PBR, news, msgs), as well as drilling-related companies Transocean (RIG, news, msgs) and Helmerich & Payne (HP, news, msgs). He's also bullish about natural gas and has stakes in producers Chesapeake Energy (CHK, news, msgs) and Comstock Resources (CRK, news, msgs).
4. Gold
The dollar's weakness is driving much of the surge in gold prices. Gold also is a hedge against inflation.Standard & Poor's recommends several funds that have substantial stakes in gold miners and producers, including Franklin Gold & Precious Metals (FKRCX), First Eagle Gold (FEGIX, news, msgs), Tocqueville Gold (TGLDX) and Oppenheimer Gold & Special Minerals (OPGSX).
Money manager Tom Lydon of Global Trends Investments in Newport Beach, Calif., uses the SPDR Gold Shares (GLD) ETF.
5. Capital-preservation funds
Volatility in stocks and bonds is low right now and market foundations are stronger. If that changes, however, you'd do well to have some money in mutual funds whose managers aim to provide returns while preserving their shareholders' principal.
Kurt Brouwer, a financial adviser at Brouwer & Janachowski in Tiburon, Calif., recommends Hussman Strategic Total Return (HSTRX) fund, Leuthold Core Investment (LCORX) fund and Permanent Portfolio (PRPFX) fund.
This article was reported by Jonathan Burton for The Wall Street Journal.
