In the December and January issues of the Personal Finance magazines (Money, Smart Money, Forbes, Kiplingers, etc) feature articles about what stocks, bonds, and sectors to invest in for 2012. Here are some of the common themes that they recommend.
Dividend Paying Stocks – Turned off by the paltry yields that treasuries offer, some people are turning to stocks to pick up the slacks for income generation. On a few occasions in recent months, the average dividend yield on the Standard & Poor’s 500-stock index has exceeded the yield on the 10-year Treasury Bond; this is something that’s happened very rarely in the past 60 years. The yields on some well-regarded firms are much, much higher than the yield on the treasuries.
Marc’s thoughts – I’ve been on the Dividend Paying Stock bandwagon for a couple of years now, and I’m not jumping off in 2012. Here is an article
I wrote about what to look for when selecting dividend payers
Gold Miners – What’s gold going to do? Is a question that almost every investor has to grapple with these days. Smart Money magazine advises investors not to focus on the metal itself, but on the firms that dig it out of the group. Traditionally, when the price of gold rises then gold mining stocks rise faster. A miner’s costs are mostly fixed, so if the metal’s price goes up nearly all of those extra dollars go right to a miner’s bottom line. But over the past year, as gold’s price has jumped 15 percent, gold mining stocks, as a group are down 1%
Marc’s thoughts – The value of mining stocks in relation to the price of gold makes sense however one thing to take into account is that investors at the first sign of inflation or fear in the markets flock to the physical metal and not the stocks of gold miners. With volatility expected to continue into 2012 having some investment in actual gold and some in gold miners may not be a bad idea. The following illustration hits home the point that investors flocking to physical gold because that’s where they feel safe, versus flocking to gold mining stocks, where more value may actually be acquired.
High Yield Bonds – Another value play for 2012 is investing in high yield bonds which have generally underperformed the safety of treasuries and corporate bonds all of 2011. Some professionals think that high yield bonds will outperform equities in 2012. A weak outlook in the US and Europe, coupled with slower growth in China, means that the global economy will likely “muddle through” the next 12 months, making high yield bonds a defensive investment class with equity like upside.
Marc’s thoughts – While I do believe there is a place in most portfolio’s for high yield bonds you have to tread lightly with this asset class as there is substantial risk in these types of investments. If you are going to invest in high yield bonds, I recommend doing it through a fund like Symbol: JNK so that you spread the credit risk amongst many securities. The second thing to consider is that in a worst case scenario, such as a double dip recession, high yield bonds will get clobbered. I would not bet the farm on them even though their 10-12% yield is very appealing.
These are just a few of the asset classes that are being recommended for 2012. And if you read enough magazines and books you will find that every asset class is recommended by someone. Every investment, including cash has risk, which is why I recommend doing a thorough analysis on the risk of your investments to ensure you are comfortable.