Investing roadmap
— -- How can you profit from a rebounding economy? Here are some smart money plays from some of
Wall Street's smartest players:
Mohamed El-Erian
Pimco
•Hold fewer U.S. stocks and more foreign shares. It is a way to profit from faster growth abroad, in places like China.
•Protect against rising inflation. All that spending by Uncle Sam boosts the odds of a surge in the inflation rate in coming years. Consider TIPS, or U.S. Treasury bonds that go up in price when inflation rises. Utility stocks and commodities are also good inflation hedges.
•Insure against disaster. Big helpings of riskier assets make sense in a stable world but not in uncertain times. To protect against steep sell-offs, investors must hold a "higher percentage of safe assets."
Abby Joseph Cohen
Goldman Sachs
•In a play on a global economic recovery (Goldman Sachs expects global growth to clock in at 4% in 2010), technology, commodity and materials stocks should benefit most.
Richard Bernstein
Bernstein Capital
Management
•Your portfolio should have a normal weighting of stocks based on your age and risk tolerance. Not too big or too small a helping of stocks.
•Invest in America, not China. Sure, China is viewed as the world's new growth engine. The problem? A credit bubble is brewing there. "There's tons of risk."
•For diversification, try U.S. Treasury bonds. Despite yields near historic lows, Bernstein says, government debt is a good risk reducer because returns on these bonds have had an inverse correlation with stocks. In contrast, most other asset classes, such as oil and emerging market stocks, have been moving in lockstep with stocks, which means if stocks fall in value, these other investments will, too.
Brian Rogers
T. Rowe Price
•Play the rebound by buying stocks of companies that will sell more stuff as the economy picks up steam, says Rogers. So-called cyclical plays, such as home improvement retailers (Home Depot), oil companies (Chevron) and diversified manufacturing companies (3M) should get a lift.
