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Taking advantage of mutual fund trends

- Alan Lavine and Gail Liberman



Here are trends that some believe could influence stock market and stock mutual fund returns:

  • The presidential election year. Over the past 26 four-year election cycles, the average gain in the stock market was 9.2 percent, according to Ned Davis Research.

  • About every three years, growth stocks and undervalued stocks take turns outperforming each other. When you invest in growth stocks, you own companies with earnings growing more than 20 percent annually. Undervalued stocks are bargain-priced stocks that reflect the future earnings improvement of a company.

  • The fifth year of each decade historically has been the best-performing year, according to the Stock Traders Almanac. The beginning year of a decade is the worst.

  • The summer months typically are the slowest period in the stock market. People go on vacation and are not interested in buying stocks. Stock prices tend to do well during the winter and early spring.

  • The business cycle. Economic booms typically last two or three years. Economic recessions last one or two years, on average.

  • Small company stocks typically outperform large company stocks when the economy emerges from a recession. Large company stocks perform best when the economic hits it stride. But as the economy heats up, inflation increases, interest rates rise and stock prices start to decline. When the economy slows, bonds perform well.

  • Demographics may influence stock prices. The aging baby boom population, for example, is about to retire. So the leisure, medical and insurance industries should benefit.

    So what's the best way to take advantage of all these investment trends without losing your shirt? Perhaps the answer is to invest in large and small company stock, bond and precious metals mutual funds. That way you have your bases covered.

    Today, interest rates, inflation and gold prices are one the rise. On the stock side, large company stocks are starting to outperform small company stocks.

    If you invest in bonds, be sure to stick with short-term or intermediate-term bonds that mature in less than 10 years. Bond prices and interest rates move in opposite directions. So when interest rates rise, bond price fall. Long-term bond prices drop more than short-term bond price when rates rise and vice versa.

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    Spouses Gail Liberman and Alan Lavine are syndicated columnists. Their latest book is "Rags to Retirement (Alpha Books)." You can e-mail them at MWliblav@aol.com.


    To read more columns, please visit the column archive.




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