Best places to put your money now: where in the world can you invest your cash in 2003? From equities to real estate, diversification is the key to finding top returns - Investing

Black Enterprise, Jan, 2003 by Donald Jay Korn

In energy, Sasveld favors Italy's ENI and France's TotalFina. "Investors have driven up the stock prices of larger oil companies but have given smaller firms less attention," he says. "These two companies have higher returns on equity and faster production growth than the majors."

What about U.S. stocks? Now may be the time to rake in some oversold blue chips. "Our recommendations include large-cap stocks that have strong cash flows, solid balance sheets, and dividend payouts," says Dyas, the American Express financial planner. "Examples include Procter & Gamble, Wal-Mart, Costco Wholesale, and Anheuser-Busch."

bonds: max out on munis

If the skimpy yields on bank CDs and money market funds don't excite you, consider bonds. Morningstar Inc., the Chicago-based mutual fund research company, put the average bond-fund yield at 5.52% as of Sept. 30, while 10-year Treasuries were yielding a little more than 4% over the same period. The catch? Such yields are taxable so you might wind up with around 2.5%, after-tax, depending on your bracket.

That's why investors like 37-year-old Dion Graham turned to munis to generate interest income and a tax break at the same time. "I'm happy I have money in municipal bonds," says Graham, a software company executive in Cerritos, California. "I locked in a 4.8% yield, after-tax; my bonds have appreciated a bit; and I had less money to lose in stocks during the past two years."

Graham made his move in early 2001 when the economic downturn was becoming apparent. "I found myself having to lay people off and I realized the importance of having a cash reserve," he says, "so I moved a little more than 10% of my portfolio into municipal bonds as a reserve in case of a future emergency. With two young children [twins who just turned 3 years old], I thought I should be taking less risk in my portfolio, so I shifted some assets from stocks to municipal bonds."

To receive interest that was exempt from state as well as federal income tax, Graham bought bonds issued in California. "I bought individual issues," he says, "which I plan to hold Until maturity [20 years]. In case I run into a need for cash, though, I can sell them. I realize that there is a chance the bonds might lose value, but bond prices are likely to be fairly stable, certainly when compared with stocks."

Antoinette Chandler, a financial advisor with Bank of America in San Francisco, says that she's currently advising clients in high tax brackets to buy municipal bonds maturing in three to five years. "That appears to be the best combination of risks and rewards," she says. "Yields may be around 3%, tax-exempt, and there's less chance of a loss of principal, in case interest rates rise."

Individual municipal bonds may be a good alternative to municipal bond funds, according to Chandler. "Funds have expenses which can eat into your yield," she says, "however, bond funds are more practical for many investors. If you're investing through a fund, try to find one with a low expense ratio and a history of doing fairly well when the bond market has been weak."