How to survive the market in 2011

Friday - 1/14/2011, 11:56am EST

Arthur Stein, certified financial planner, SPC Financial

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By Suzanne Kubota
Senior Internet Editor
FederalNewsRadio.com

You might have a strategy for how you put money in the stock market. Looking at past performance is just one indicator.

Last year, said Arthur Stein, certified financial planner with SPC Financial in Rockville, Maryland, risk was rewarded. Stocks out performed bonds. Small caps did better than large caps. Emerging markets returned more than larger countries' markets.

The downside, Stein told Federal News Radio, was that savings rates "declined sharply" with the interest rates on one-year CDs dropping 46 percent. Even the TSP's G-fund was 43 percent lower than in 2007. It was still positive, but much lower returns than in the past.

While most experts expect good things for 2011, said Stein, "there's a lot of scary things" in the economy now. "We don't know if they're going to cause a problem or not." Stein gave examples of state economies in budget crises, muni bonds rates dropping, high unemployment that looks like it will stay high, the housing market not doing well and many countries, including China, raising interest rates. And the clincher, said Stein, is that it doesn't look good for the bond market because interest rates will have to go up - eventually.

So if you are thinking about investing in 2011, don't forget to look at one item in particular: how much a company has on hand in cash.

"That makes them a stronger company because they don't have to worry about debt," said Stein, especially if interest rates are going to go up. That, in turn, makes debt very expensive.