December 9, 2010

Outlook 2011, Personal Finance: Investors See Sun, Consumers Some Clouds

Thomson Reuters panelists see good times for stock investors but continued consumer doldrums

The forecast for personal finance in 2011 is partly cloudy for U.S. consumers but sunny for stock investors, said analysts on Dec. 8 at a Thomson Reuters panel talk.

Individual investors may still be feeling risk-averse after the 2008 crisis, but they should consider getting back into U.S. stocks, panelists agreed during a discussion that ranged from inflation to the housing market to retirement savings.

“The highest quality companies in the world are right here in the United States,” said Bill Miller, chairman and chief investment officer for Legg Mason Capital Management.

U.S. equities are currently undervalued by 20% to 30%, and market conditions for individual investors are considerably better now than they were a couple of years ago, said Miller, a noted value investor.

Miller’s top stock picks for 2011 are in technology, healthcare and financials. He likes Hewlett-Packard, Cisco, Microsoft and IBM in the tech sector, and believes that large-cap financials such as Citigroup and JPMorgan are undervalued.

But the reality is that uncertain investors are continuing to shy away from stocks, even as cash-rich U.S. companies are seeing higher dividend growth. Instead, they are sticking to low-yielding bonds because they still see them as a safe harbor.

“If the individual investor has shown a talent for anything, it’s chasing past performance,” warned panelist Liz Ann Sonders, chief investment strategist for Charles Schwab & Co., adding that she has only recently started to see some investors looking to get out of bonds.

Sonders recommended investing in consumer-sector companies with sales in the BRIC countries of Brazil, Russia, India and China, which are seeing tremendous growth among the middle classes.

Jean Chatzky, personal finance editor on the NBC Today Show, rounded out the panel, which also featured a peek into Prism, an informational web tool from Thomson Reuters and Lipper that allowed individual investors to track their investments and see all of their assets in one place. Prism is scheduled to launch in spring 2011.

Chatzky predicted that the outlook for homeowners won’t improve until jobs come back, and she agreed with Sonders that the improvement will show a lot of divergence from region to region. Las Vegas, for example, will stay sluggish as the coasts pull ahead.

One personal-finance negative in 2011 may come from pent-up consumer demand, they warned, as “frugality fatigue” sets in and shoppers start pulling out their credit cards again with an accompanying rise in consumer debt levels.

The good news, Chatzky said, is that increasingly, she sees “a willingness of people to see that we don’t always do things that are good for us,” which accounts for the rising popularity of automatic deposits into 401(k) retirement plans.

See AdvisorOne's Outlook 2011 calendar to find the publishing dates for, and links to, other categories in the Outlook series.

Read about the MFS Investment 2011 outlook for stock dividends at AdvisorOne.com.

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