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2005: Where to Invest

Big Deals, Big Firms Rule Picks

By Ben White
Washington Post Staff Writer
Sunday, January 2, 2005; Page F01

First, the case against stocks in 2005: The bull market that began in October 2002 is getting old. The United States is running huge trade and budget deficits. The dollar continues to fall. Corporate profit growth is slowing. Iraq is a mess.

Second, the case in favor: Oil prices have eased somewhat. Inflation and interest rates remain low. The economy, while choppy, keeps chugging along. Companies are flush with cash. Wall Street is humming with merger and acquisition activity.

(Paul Sakuma -- The AP)

_____2005: Where To Invest_____
Risks Cloud a Sunny Forecast (The Washington Post, Jan 2, 2005)
Investing Is a Rebalancing Act (The Washington Post, Jan 2, 2005)
Fees Take a Bite From 401(k)s (The Washington Post, Jan 2, 2005)
Regular Tinkering Keeps Allocations in Check (The Washington Post, Jan 2, 2005)
Options Exist to Hedge Against Rising Interest Rates (The Washington Post, Jan 2, 2005)
_____Cash Flow_____
Crenshaw No-Leak 401(k)s: Albert B. Crenshaw writes, "One of the key problems that continute to beset 401(k) and related retirement savings plans is what experts call "leakage" -- the tendency of account holders to withdraw their money when they change jobs and spend it."
_____4th Quarter Funds_____
Research your mutual funds' performance for the fourth quarter of 2004:
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What is the individual investor to make of all this?

Will 2005 bring robust across-the-board stock market gains, making index funds a safe bet? Or is it time to hunker down with bonds, cash and a few well-picked stocks?

Depends on whom you ask, of course. But quiz enough Wall Street pros and a rough consensus begins to emerge.

Many experts say 2005 will bring modest stock market returns of 5 to 10 percent, much like 2004's. Stocks of big, quality companies that pay dividends and have exposure to different currencies and emerging economies will outperform those of smaller firms that raced ahead in the past two years but are more sensitive to rising interest rates and a falling dollar, both conditions likely to prevail in 2005.

In addition to boosting dividend payments and buying back their own stock, cash-rich companies will continue to seek out strategic acquisitions, especially in the banking, pharmaceutical and technology sectors. Stocks of potential acquisition targets could soar.

Finally, many experts say the so-called BRIC countries -- Brazil, Russia, India and China -- will continue to emerge as must-own investments for those eager to tap into the growth of economies that could be among the world's largest by 2050. In short, experts say, 2005 will be a year for precise decision-making, modest expectations and steady nerves.

"We are looking for mid-to-high single-digit equity returns," said Tim Leach, chief investment officer at U.S. Trust, a New York money management firm catering to wealthy individuals and families. "But it's going to be a tortuous path getting there."

More Deals, More Growth

The final months of 2004 brought a flurry of deals on Wall Street. Sprint Corp. bought Nextel Communications. Oracle Corp. bought PeopleSoft. Johnson & Johnson bought Guidant Corp. Symantec Corp. bought Veritas Software.

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