From the February 2011 issue of Investment Advisor • Subscribe!

Asset Allocation: February 2011

Behind the Numbers with LPL Financial

Overall, 2011 will continue the economic and market volatility of 2010. The global economy remains out of balance, teetering back and forth between the soft spots that invoke a need for increasingly extended policy support and the growth spurts that provoke a desire to begin to pull back some of the record-breaking stimulus. The last time government spending comprised as much of GDP as it does today (during 1945–1960), the economy went through a period of heightened volatility driven by the swings in policy action.

In 2011, the policy-driven themes of reflation, which is the intentional pursuit of modestly higher prices, and a broader U.S. foreign policy provide investment ideas that can thrive in a year where the performance of the major indexes is likely to be lackluster. Expected volatility, which will remain elevated, may present risks to be side-stepped and opportunities to be taken advantage of. Investors with a more opportunistic profile may benefit from a tactical approach to investing in order to find attractive opportunities when offered and successfully take profits when appropriate. Longer-term strategic investors should consider remaining broadly diversified. —LPL Financial Research’s “Outlook 2011: A Mix of Clouds and Sun”

Click here to view a PDF of the February 2011 economic and financial forecast, and recommended allocations for a balanced portfolio.

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