Top Investments of 2009

Dec. 31, 2009— -- It has been a tough year for many Americans, as the economy continued to shed jobs and a record number of homeowners fell behind on their mortgages. But for those who were flush enough -- and savvy enough -- to put their savings into assets battered the year before, rewards were spectacular.

The U.S. stock market, of course, gave a pretty good boost, with the S&P 500 returning more than 25 percent in 2009.

But that's old news. A range of other less-publicized investments, from gold to junk bonds, made some investors very rich this year.

Here's a look at the top six plays of 2009.

Junk Bonds: Up 57 Percent

The name says junk, but the profits were anything but. Junk bonds -- also known as high-yield bonds because they typically offer a higher interest rate to compensate investors for the risk they're taking -- posted a whopping 57 percent return this year, according to Merrill Lynch.

It's a sign of how far investor confidence has come, considering that junk bonds by definition are bonds issued by American companies with such bad credit that many mutual funds are not even allowed to invest in them.

But prices had just fallen too far to ignore.

In 2008, when the financial crisis scared investors into buying only the safest bonds issued by the government and companies with impeccable credit, junk bonds fell to record lows. In fact, investors were pricing junk bonds as if American companies would go bankrupt at the same pace they did during the Great Depression.

"Investors backed down from that Armageddon scenario," says Mirjam Sjoblom, a bond fund analyst at Morningstar. "Investors are realizing that defaults aren't going to be as bad as many had expected."

Within the junk bond, some categories fared better than others. Companies that were battered the most in 2008, such as financial institutions, saw a nice jump. In addition, companies that are very sensitive to economic cycles such as automakers and retailers, also posted healthy gains.

Silver: Up 52 Percent

Anything cold and shiny added a touch of sparkle to portfolios this year. Industrial metals such as silver, copper and platinum surged as economic activity around the world picked up, spurring demand from manufacturers who use these metals to build everything from cell phones to cars. Silver, for example, rose 52 percent and now trades at about $17.56 an ounce.

Gold, meanwhile, rose 24 percent to $1,107 an ounce, as jittery investors flocked to a tangible, safe asset in an uncertain climate.

"With all the money that's being printed around the world, and the deficits we're running, there's concern that down the line we're going to see some serious inflation," says Marshal Beroll of the Encompass Fund, which gained 133 percent this year partly by investing in companies involved with gold. As in previous recessions, investors flocked to gold as a stable investment that doesn't lose value during inflation.

Demand from the booming middle classes of China and India also gave a boost.

Diedrich Coffee: Up 8,600 Percent

Maybe you could have predicted the surge in junk bonds or gold, but only a crystal ball would have told you that a small coffee roaster in California would be America's best-performing stock in 2009, posting a whopping 8,600 percent gain to $35 per share.

What could Diedrich Coffee possibly have done to deserve such a jump? It attracted a bidding war between Peet's Coffee and Green Mountain, two of the country's largest coffee distributors.

At the heart of the match were the little single-serve coffee containers that fit into Keurig machines in offices and hotels around the country, which Green Mountain invented, Diedrich's makes, and Peet's wanted sip of.

"Green Mountain wanted to bring Diedrich in house and control the distribution," explains Cody Slach, a Diedrich spokesman. "It's like the iPod of coffee, it's changing the way people drink coffee."

Green Mountain won in the end. A deal was signed earlier this month but isn't expected to close until early 2010.

Chinese Stocks: Up 76 Percent

Investors in the Shanghai stock index earned a hefty 76 percent this year. Despite financial woes that shook economies around the world, China seems to have escaped mostly unscathed.

"China is on the mind of a lot of people," says Beroll, pointing out that investors like the spending prospects of a 1.3 billion-strong and rapidly growing population.

In addition, a stimulus package by the Chinese government gave the country's growth a sturdy jolt.

"The Chinese stimulus plan had a much more immediate effect than the American stimulus did," Beroll says.

Investors who were too nervous to invest directly in the Chinese market had a generous selections of alternatives here in the U.S., through Chinese stocks that trade on the NYSE and Nasdaq and mutual funds and ETFs that track Chinese stock markets.

The Oberweis China Opportunities mutual fund, for example, rose 137 percent in the past year by investing in Chinese technology companies and telecoms.

Pro Funds Ultra Latin America Investments Fund: Up 223 Percent

It's not often that a mutual fund posts a 223 percent return in a single year, but that's just what the Pro Funds Ultra Latin America Investments Fund did. After you adjust for some investment math, this means that $10,000 invested at the beginning of the year would be worth $33,606 today, according to Morningstar.

Managed out of Bethesda, Md., this is an index fund meant to mimic returns on an index of the 35 Latin American companies listed on the New York Stock Exchange. It invests in everything from a Brazilian oil company to a Chilean winery.

Latin America was, in fact, one of the biggest gainers this year after the scare of 2008. When investors realized that the global recession wasn't going to topple those emerging economies into another freefall similar to that of the late 1990s, they decided to pile their cash back into its stocks, bonds and currencies.

Granted, part of the reason this fund did so well is because it's leveraged, which means it borrows money to help give investors twice the return on their money. And it also means that investors stand to lose double when the fund dips.

Too bad it comes with a disclaimer: Past performance doesn't guarantee future returns.

Australian Dollar: Up 27 Percent

The good fortune of the Chinese economy rubbed off on several countries around it, including down under. As a result, the Australian dollar rose 27 percent against the U.S. dollar this year, making it the best performer of all the world's major currencies.

"Australia was the only country in the G20 that didn't fall into a recession, because China helped keep it afloat," says Kathy Lien, director of currency research at foreign exchange trading site GFT, referring to the "Group of 20" industrialized nations that include everyone from the United States and Japan to India and Saudi Arabia.

She explains that Chinese appetite for Australian assets helped prop Australian stocks, real estate and corporate spending, among others.

As a result, Australia's was the only central bank that had the luxury of raising interest rates this year, while others were frantically cutting rates in order to boost economic growth.

"In a world where investors shift money from country to country in search of the highest yield, the higher interest rates of Australia made it a very attractive investment," says Lien.