Knowing where to invest in 2012, or any time frame, requires a complete guide that covers strategies and ideas for asset allocation, stocks, bonds, cash, sectors, foreign investing, indexes and ETFs. Check this efficient overview to quickly find the ideas you need to invest in 2012 -- economic and financial market outlooks, specific mutual fund investing ideas and the basics to give you the information needed to make the best decisions. Most importantly, there is no one-size-fits-all approach. Therefore the complete guide to mutual fund investing in 2012 includes tips and tools to create the best portfolio of mutual funds for you.
The best place to begin our Where to Invest series of articles for 2012 is at, well, the beginning. If you don't know the basics of building a solid portfolio of mutual funds, knowing where to invest won't help you much. You'll need to revisit the basics of portfolio structure and design, diversification strategies, asset allocation, and how to choose mutual funds. It will also help to determine or clarify if you are an aggressive investor, a moderate investor or a conservative investor. This will aid in forming a basic asset allocation.
After returning to the basics of building a portfolio, you're ready to dig into the ideal asset allocation for you and to combine that allocation with one that can be tweaked a bit for 2012. As you may already know, asset allocation has more influence over a portfolio's total return than the individual investments. For example, if you choose some of the best stock mutual funds for 2012 but stocks have a terrible year, it is possible that even a mediocre bond fund would have been a better choice. Of course, hindsight is 20/20 but looking forward into a year that is likely to be filled with uncertainty and volatility, as in 2011, a solid combination of stocks, bonds and cash will be your best bet for 2012. In summary, the investor who does the best balancing act in 2012 will likely come out a winner.
Most mutual fund investors, at least those implementing a Core and Satellite portfolio strategy, will have a significant portion of their mutual fund portfolio in large-cap stocks. But what about other types of mutual funds, such as Foreign Stock? Will 2012 be a good year for Europe? Will the massive credit crisis in Europe be contained? What about emerging markets, such as China, India and Brazil? Not surprisingly, there is much pessimism and related anxiety over the prospects of foreign stock for 2012. However, the prudent mutual fund investor will still remember that foreign stock plays an important role in diversification. Additionally, the aggressive investor might consider going against the fears of the crowd and consider European and other foreign stock investing for 2012.
Some investors may consider diversifying into various sector funds in 2012. But which sectors will perform well and which ones should investors avoid? Based upon the neutral to negative outlook for the year, the best sectors in 2012 will likely be those that are considered "defensive," such as health, consumer staples and utilities. Again, it is important for investors to understand the risks of certain types of mutual funds and to apply prudent asset allocation strategies to do a good job of minimizing market risk while maximizing potential returns.
A diverse portfolio of mutual funds is not complete without a good bond fund. If you listen to the most-respected bond fund manager on the the planet, Bill Gross, you'll take into consideration that the best days of bonds may already be behind us. With interest rates at historic lows (bond prices generally go up when interest rates go down) and world economies stuck in neutral and possibly headed back into reverse, bond fund investing may be the most challenging for 2012. Perhaps the best move in 2012 is to balance interest rate risk with weak economic conditions by considering a solid intermediate-term bond fund or a total bond market index bond fund or ETF.
Index funds can always be advantageous because of their simplicity and low cost. However, 2012 could be an especially good year for index funds and ETFs because navigating financial markets in 2012 will be difficult, even for the most seasoned of fund managers. Therefore the passive vs active debate may prove to be in favor of index funds (passive) for 2012.
A guide for how to invest in 2012 would not be complete without a supplemental guide on finding the best mutual funds. You'll want to consider some key winning ingredients of the best mutual funds, such as expense ratio and manager tenure.
Disclaimer:The information on this site is provided for discussion purposes only, and should not be misconstrued as investment advice. Under no circumstances does this information represent a recommendation to buy or sell securities.