Wes Moss: How should you invest in 2012?

Certified financial planner Wes Moss provides personal finance advice and accessible investment strategies. His guest post appears here weekly.

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB

Wes Moss hosts 'Money Matters' Sunday mornings on AM750 and 95.5FM News/Talk WSB

Ah, the New Year! It’s a time of promise and renewal, of hopes and dreams for great times ahead — except, perhaps, for the short-term economy. If Hollywood made a movie about the 2012 economic outlook, the working title could be “Slow and Slower.”

Financial forecasting guru Bill Gross of the PIMCO investment firm predicts 2012 economic growth in the U.S. will hover between 0 and 1 percent. On “Money Matters,” we’re slightly more optimistic, based on the three factors:

  1. Consumers are still spending. Preliminary holiday sales figures are strong, and through Nov. 30, discretionary consumer spending was already up 6.9 percent over 2010.
  2. Unemployment is down. We don’t expect a continued, rapid decrease in unemployment, but the fact that it fell to 8.6 percent in November is positive and should contribute to continued economic expansion.
  3. This is an election year. Election years bring less economic uncertainty, as the government’s economic and fiscal policies are unlikely to change dramatically during the campaign season. This gives investors and business people a bit more confidence.

Depending on your outlook, there are two ways to play the market this year. If you think we’ll see slow or no growth, the SHUT index may be an appropriate way to position your portfolio. If you expect higher growth rates, think MED FIT.

SHUT stands for Staples, Health care, Utilities, and Telecom. This is a defensive strategy in which you invest in companies that provide the “must-haves” of modern life – food, health care, electricity, etc. If you think the economy will remain stagnant, this is where you should put your money. During the tech crash of 2000, defensive sectors outperformed “cyclical” stocks — which rise and fall with economic expansion and contraction — by 74 percent. So far in the EU credit crisis, SHUT stocks are doing 20 percent better than the cyclicals.

If you think the economy has bottomed out and a real recovery is likely this year, consider the MED FIT approach – investing in Materials, Energy, Discretionary, Financials, Industrials, and Technology. This is a great way to get in on the ground floor of a recovery. During the initial stages of an economic and market recovery, MED FIT sectors return 39.9 percent vs. 23.8 percent for the SHUT index components.

This year has been a perfect example of differences in economically sensitive stock selection:

As of Dec. 22, the S&P was 3.5 percent lower on the year. Cyclical sectors such as materials were down 15 percent and financials were down 14 percent. Defensive sectors were positive with utilities up 17 percent and health care up 10 percent.

Of course, these investments should comprise just one part of your financial plan. On “Money Matters” we operate on the “bucket system.” The strategies above apply to the money in your growth bucket. We are also firm believers in buying stocks that will generate income in retirement. Keep that in mind as you decide what to buy.

What do you see coming in 2012? Will it be a better year for the economy? What’s your personal financial outlook for the coming year?

– By Wes Moss, for Atlanta Bargain Hunter

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[...] investors might want to focus on life’s necessities, the products and services represented in the “SHUT” sectors of the market. Increased sentiment in the back half of the year might justify moving into the cyclical sectors, [...]