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Last year was unquestionably a fruitful year for investors. With inflation at a 31-year low, both the budget deficit and unemployment at a 21-year low, and strong corporate earnings, there wasn’t much to complain about in 1997. In the opinion of Carolyn Taylor, president of Weather Asset Management in Del Mar, 1998 will be just peachy, too.
"I think it’s a very fertile investment environment still, and though people have been concerned about the Asian crisis — the flu — that was a learning situation for investors," Taylor says. "If Asia isn’t an appropriate part of their portfolio, great. But if a small part is Asian, it’s a low-risk exposure. And we got back to the 8,000 level on the Dow and the long bond is close to 6 percent."
Taylor is not frightened by the long bull market and the recent stock market volatility.
"I don’t see it as scary if people focus on normal asset allocation over the long term, if they make sure they have the appropriate amount of stocks, real estate, bonds, and so forth," she says.
The stock market, Taylor admits, "won’t be charging forward as it has in the past few years, and I almost hope it doesn’t. Investors need to return in their thoughts to what is a normal market. The year ahead will be a reasonably good year for both bonds and stocks. I still see interest rates trending downward. There is no reason to raise rates, which will bode well for stocks."
Taylor says that her clients' assets are split between about 30 percent in bonds and 70 percent in stocks. Even at that level of stocks, she says, investors can outperform the S&P 500 but with lower risk. As far as bonds are concerned, "We buy mostly Treasuries or high-quality municipals. I like to go out to 10 years in maturity. You get the most bang for your buck in yield that way. The average maturity is four to five years."
For stocks, Taylor says she likes financial institutions, particularly insurance companies. This is a sector that benefits from low interest rates and increasing efficiency.
"I also like the technology area. I see technology as a driving factor in the economy. Invest in a diversified number of areas and companies with strong overseas exposure and strong brand names. Though some of those companies got hit very hard in October, they came out of it quite well and they will do well for the long run."
This also is a good time to get into real estate, Taylor adds. "The best thing is to own your own home and take any deductions you can from that. And own additional real estate that is affordable for you. Interest rates are still attractive for financing, and for a diversified portfolio, real estate is an asset class you want to have."
Life may not be as exciting for the plodder, but in Taylor's opinion, the path to riches is paved with patience. "Don't be too dramatic," she cautions. "Look to the long term."
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Has Peter Lynch been talking to Carolyn Taylor? Lynch, the legendary former manager of Fidelity Investment's Magellan Fund, was asked a question in Fidelity's winter magazine: Is it reasonable to continue to expect 20 percent annual returns in the stock market?
"Definitely not," Lynch replied. "During the past 40 years, domestic stock returns have increased an average of 11.18 percent per year. This includes dividends that ranged from 2 percent to 7 percent each year over that time period. Going forward, investors shouldn't expect returns greater than this long-term historical return of approximately 11 percent. Of course, past performance is no guarantee of future results."
Lynch also reminded investors that when you buy a stock, you are not buying a lottery ticket; you are buying a little piece of a company. Look for companies that you expect to be healthy and thriving five or 10 years down the road. With a nice little collection of these companies, you will do well.
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Don't forget the kids: The end of the year is a good time to review your investments, evaluate your progress in achieving old goals and set new goals. If a child or grandchild is part of your planning, the Mutual Fund Education Alliance offers special help, either through The Mutual Fund Investor's Kit or the Alliance Website.
The Investor's Kit is a 60-page book with sections on mapping out investment strategies for youngsters, saving for college and other topics. To order the kit, send $10 to the Mutual Fund Education Alliance, Dept. 0148, P.O. Box 419263, Kansas City, MO 64193-0148.
The online Mutual Fund Investor's Center has a lot of the same information, but it also makes available special interactive calculators and worksheets to help determine how much time and money children will need to reach their goals. The Website lists funds just for children, and funds that reduce minimum deposits for an account established in a child's name. The Website also is a clearinghouse for developments in the mutual fund industry and a gateway to 40 different no-load fund companies. The address is www.mfea.com.
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Follow-up on the Full House Resorts story: Alan Paulson, owner of the racehorse Cigar, has closed the deal to purchase the Riviera Hotel Casino on the Las Vegas Strip and the Four Queens Hotel in downtown Las Vegas. The resorts were purchased by Full House for $91 million in cash and the assumption of $213 million in debt. As reported in this column last fall, Paulson is not a newcomer to the gambling industry, although he is a newcomer to Nevada gaming. Paulson, a resident of Rancho Santa Fe, is chairman of the Del Mar-based Full House Resorts. Full House operates a small casino in Deadwood, S.D., and is a consultant in the operation of an Indian casino in Coos Bay, Ore. The Riviera and the Four Queens are aging properties that must compete with a bevy of glitzy new Las Vegas hotel-casinos. Both hotels were in bankruptcy earlier in the decade. "These transactions will serve as the cornerstones to the creation of a multi-jurisdictional gaming enterprise encompassing a large market," Paulson told a Las Vegas newspaper. The Nevada Gaming Commission also approved Paulson's bid to buy the bankrupt Gold River resort in Laughlin.
Janet Lowe is author of several investment books, including "Value Investing Made Easy" (McGraw Hill) and "Warren Buffett Speaks" (John Wiley & Sons).
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