10 Grand Ideas

Where experts would store $10,000 in investments

Your Money

December 05, 2004|By ANDREW LECKEY

How would you invest $10,000 in the coming year?

That's the question I pose to a diverse group of investment and economic pundits each year.

Last year they encouraged investors to gradually build an arsenal of stocks and warned of interest rates beginning an upward trend. Except for a few premature tech stock recommendations, the group was pretty much on the money.

This year's panel predicts a solid economy - though likely weaker than in 2004 - with moderately rising interest rates and inflation. Large-cap stocks are favored. Long-term bonds are out.

Here's the latest advice from our crystal ball for that 10 grand:

James Barnash

President-elect of the Financial Planning Association and managing director of Lincoln Financial Advisors in Chicago

"Avoid real estate because it's been so hot and fixed-income investments because interest rates will rise. Markets will have some growth, and technology will have a strong 2005. It would make sense to put $2,500 in large international companies, $2,500 in mid-cap U.S. growth companies, $2,500 in developing Third World markets and $2,500 in technology."

Steven DeSanctis

Director of small-cap stock research for Prudential Securities in New York

"Earnings growth won't be nearly as strong in 2005. We see 2 percent growth for the S&P 500. Small-cap stocks will grow in the single digits, closer in relation to large caps than during the past four years. Emphasize large-cap growth stocks. Small-cap financial stocks look suspicious, since there will be a slowdown in mortgage refinancing. Be wary of consumer services stocks because spending will slow."

Hugh Johnson

Chief investment officer at First Albany Corp. in Albany, N.Y.

"The economy will grow at a rate of 3.5 percent, not as strong as 2004. Be wary of stock in banks, insurance companies, energy and pharmaceuticals. Allocate $6,500 to McGraw-Hill Cos., Walt Disney Co., Colgate-Palmolive Co., Clorox Co., United Technologies Corp. or Dell Inc. Then put $3,000 in bonds and $500 in cash."

James Paulsen

Chief investment officer for Wells Capital Management in Minneapolis

"We expect better GDP growth in 2005 than most people think, perhaps 4 [percent] to 5 percent. The Standard & Poor's 500 should reach 1,300 to 1,350 in the first nine months, then inflation may hit and cause problems. If your normal portfolio weighting is 60 percent stocks and 40 percent bonds, make it 75 percent stocks and 25 percent bonds. Emphasize technology, industrial, basic materials and consumer cyclical stocks. International and large-cap stocks should be favored. Put more money in municipal bonds than Treasuries. Shorten maturities."

Alfred Goldman

Chief market strategist for A.G. Edwards & Sons in St. Louis

"The fourth year of the recovery is getting long in the tooth. GDP will rise 3.5 percent next year and inflation will rise 2.5 percent. The bull market is 26 months old and its knees are starting to creak. First, consider a good diversified growth stock fund. But if you want individual stocks, put $2,500 in Fifth Third Bancorp, $2,500 in GlobalSantaFe Corp., $2,500 in Wal-Mart Stores Inc. and $2,500 in Lennar Corp."

Martin Mauro

Senior economist with Merrill Lynch & Co. Inc. in New York

"There will be good economic growth in 2005. In taxable bonds, stay with intermediate rather than long-term. Put $7,000 in municipal securities, $1,000 in Treasuries, $500 in investment-grade corporate bonds, $500 in preferred securities, $500 in mortgage-backed bonds, $300 in high-yield corporate securities and $200 in Freddie Mac or Fannie Mae."

Richard Yamarone

Chief economist for Argus Research Corp. in New York

"The economy will grow at a 3 percent pace in 2005, not strong enough for great job growth. Put $8,000 in U.S. government inflation-protected securities because inflation may creep up. We've already seen skyrocketing medical, health care and energy costs. Inflation will erode the price of fixed-income securities. Put the remaining $2,000 in higher-risk corporate [junk) bonds and let the chips ride."

Don Phillips

Managing director of Morningstar Inc. in Chicago

"Be wary of interest-rate risk in investments such as long-term government bonds. I'd put the $10,000 in a large-cap growth-oriented fund such as Janus Mercury Fund because this category woefully under performed the past five years. There are bargains in classic blue-chip stocks. Janus Mercury's manager, David Corkins, also had a terrific track record at other Janus funds."

Richard Cripps

Chief market strategist for Legg Mason Wood Walker in Baltimore

"A driver for economic growth is the falling dollar that's increasing demand for our exports. Consumer spending and capital spending will slow. Avoid small-cap value stocks because that's where the money was put the past four years. Invest $2,500 in InterActiveCorp., $2,500 in Omnicare Inc., $2,500 in Texas Instruments Inc. and $2,500 in Tiffany & Co."

Sam Stovall

Senior investment strategist for Standard & Poor's Corp. in New York

"The gross domestic product will grow 3.6 percent in 2005, following this year's estimated 4.4 percent. Inflation will probably fall due to lower oil prices. It's important to seek high earnings and growth consistency. Consider investing the $10,000 in Bed Bath & Beyond Inc., Capital One Financial Corp., Omnicom Group Inc. and Altria Group Inc."

Andrew Leckey is a Tribune Media Services columnist.

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