The year-end news for stocks looks promising. During the last quarter, we've enjoyed a rally of approximately 10 percent (helped by a so-called Santa rally, when the market rises between Christmas and New Year's). That's the best stock-market rally during a fourth quarter since 2003.
Some experts are still convinced it's all smoke and mirrors (really, the stock market?) and the rally won't be sustained. True, we're sitting at the same market levels as before the economy collapsed, so gaining back the ground already lost doesn't always seem like progress. And I don't think anyone believes we're in for a steady climb over the next decade. But when I recall the dismal days of March 2009, when the market was nearly half what it is now, I'm finding reasons to break out the Champagne that don't involve a forced New Year's Eve party.
If you're a believer in the market as a means to build wealth, you can't help but join in the recent optimism. The recovery has been slow, for sure, with mixed messages about housing and jobs. Consumerism is creeping back up, with the luxury market supposedly leading the way.
With interest rates on savings accounts and CDs in the range of non-existent to dismal, it's difficult to find a haven for growth. Growth always comes with risk, no matter what method you choose, so you have to understand your tolerance for it. The real-estate market is cyclical, and now that we're priced at or near the bottom, depending on where you live, you could invest some cash there. If you can't stomach real estate, is it too late to invest in stocks? Stock dividends are low, and corporate debt is rising. Some experts advise investing in U.S. equities and others swear that emerging markets will lead the way.
I would say your time horizon matters more than ever in this particular decision. We've been seeing a near-steady rally in the market since 2009, and shares are more expensive. How far up the market could go, and how soon, is anyone's guess. The younger you are, the better your prospects for using time to your advantage.
For more on how to invest smarter in 2011, read tips from Bankrate's own Dr. Don.
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