This morning Todd started a debate on where to invest in for 2012 and I wanted to add another dimension to the topic- which asset class would be the best investment for 2012?
Treasury Bonds had a fantastic year, returning more than 9.7% year-to-date, their best performance since 13.7% in 2008. While the treasuries will continue to benefit from the flight to quality, improving economic data will pose headwinds. Bond yield may rise slightly in 2012 as the fears about US recession recede further, even though the Fed is expected to maintain the rates near zero at least through 2014.
Stock Market is set to close the year almost flat. Economy will probably muddle through in 2012, though unemployment may not come down significantly. Corporate earnings will continue to rise and stocks of companies with strong balance sheets may deliver attractive returns. Considering the situation in most other parts of the developed world, U.S. looks pretty good for stock market investors, though strong possibility of a European recession will continue to hurt the market sentiment.
Gold: Gold is on track to gain 8% this year, yielding positive returns for the eleventh year in a row. Though the precious metal lost some of its shine recently, many view the decline as a buying opportunity. As the Government printing presses continue to run overtime, gold may benefit as an inflation hedge. Also the central banks of the emerging countries are likely to resume their gold purchases in 2012.
Real Estate– Housing appears to be bottoming out now though the recovery will not come anytime soon. For those who had postponed their home buying decision due to the risk of declining values, now may be a good time to buy a house vs. renting (depending on your preferred location). The potential beneficiaries from stabilization in housing markets are residential REITs, timber REITs and homebuilders.
Also, remember that long term performance of an investment portfolio depends mostly (some studies suggest ~ 90%) on asset allocation, i.e. how an investor allocates money among major asset classes. You must have a diversified portfolio of assets that are negatively correlated with each other, though allocation to different assets depends on your financial situation, investment goals, risk tolerance, level of knowledge, and investing time horizon.
To read this article on Zacks.com click here.
Zacks Investment Research
