Stocks promise best returns

Andrew Leckey

January 07, 1992|By Andrew Leckey | Andrew Leckey,Tribune Media

Get a move on. Financial advisers are urging clients to shift money out of low-interest investments and into the stock market now.

This call to action has helped boost the Dow Jones industrial average to record highs. After all, money has to go somewhere when it's pulled out of certificates of deposit and money-market funds.

The year 1992 is, indeed, shaping up as another fine one for the stock market, though few expect it to equal 1991 and the breakneck upward pace of recent months.

"The investor with money in CDs and money-market accounts can expect a total return of just 4 percent in 1992 vs. the 20 percent return we expect for the stock market," said James Coxon, director of U.S. equity investments for Kemper Financial Services. "We, therefore, recommend that investors with money in cash vehicles switch part of that money into the stock market as soon as possible."

Don't put all of it in, mind you, but a healthy addition may pay off, experts say.

"I cannot stress enough how individual investors must diversify investments away from just cash instruments in 1992, since there simply won't be enough return," said Alfred Kugel, chief economist for Stein Roe & Farnham. "The stock market is the place to be because it offers great returnswhen you take a long-term perspective."

Individual investors should place about 65 percent of their portfolio in stocks and 35 percent in bonds, with only a minimal position in cash, Coxon advises.

Kugel believes existing investors should have 60 percent in stocks and 40 percent in bonds. New investorsshould put 25 percent in stocks, 25 percent in bonds and 50 percent in cash, because most new investors need to get their feet wet more gradually.

Expect good things in 1992, but realize market volatility will be with us for the long haul. If you're squeamish, you'll do a lot of worrying in the market.

"I think 1992 will be a dynamic year . . . but not as dynamic as the 27 percent total rate of return in 1991," predicted Kugel.

Both Coxon and Kugel are sure the health care and financial industries will be among the strongest market performers. Coxon also likes software services, tobacco and beverage companies.

Coxon's favorite stocks for 1992 are:

* J.P. Morgan, the pre-eminent money center bank which is increasing market share while maintaining a stronger balance sheet than competitors.

* Philip Morris Cos., a reasonably priced stock of a firm featuring strong tobacco and food businesses with successful, internationally recognized brands.

* Liz Claiborne Inc., which has been increasing market share by diversifying its product line to accessories and footwear.

* The Federal National Mortgage Association, which has been expanding its market share at the expense of troubled savings and loan associations.

Beginning investors usually start by investing in stock mutual funds, which pool stocks together. Each fund has different goals and it's important to check five-year performance.

To buy individual stocks, start with four or five, each selling for about $25 a share, in quantities of 100 shares. Since individual stocks perform differently at various times, a diversified portfolio helps spread ups and downs more evenly. Hundred-share lots are considered the norm. Buying fewer shares than that will result in a greater charge per share.

Select your investment goals and only invest to the degree that your confidence permits.

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