"Where Should I Invest Money Now?"

I've been getting lots of questions recently from clients and prospects who are struggling with the current investment climate.

The economic data has been soft recently, even though first quarter earnings reports are generally better than expectations.

Stocks have moved up sharply since the beginning of the Fed's QE2 program last fall, but now it appears that the Fed is moving to the sidelines, at least for the time being.

Bonds, meanwhile, continue to rally, and yields have moved down sharply since early February. At this writing, the 10-year Treasury yields 3.32%, which is almost exactly where they were at the beginning of 2011.

Municipal yields have dropped for the last 11 days in a row, and the AAA municipal now yields 2.91%. Municipal supply has been relatively light this year for a variety of reasons, and investors have become more comfortable with the idea that municipal doomsayers like Meredith Whitney were overly pessimistic.

So, with cash and bond yields so low, and the economy showing signs of weakness, what should the individual investor do?

With this as a backdrop, I thought I would share an email that I sent to a good client this AM:

Hi,

The most attractive areas for investment, in my opinion, pretty much mirror what I mentioned to you earlier this year.

Longer maturity municipals still offer reasonably attractive after-tax returns in a low yield world.

Large cap, dividend-paying stocks are trading at a lower valuation than many other sectors of the market. In some cases, the dividend yield on the stock is better than the bonds issued by the same corporation. In addition, while the general economic news seems to have turned softer, the first quarter earnings reports for most companies have been pretty good.

I still don't find any value in shorter maturity bonds. Yields are way too low (e.g., the 2-year Treasury note yields a whopping 0.65%) unless you are super bearish on the world.

Shorter municipals, by the way, also are mostly yielding less than 1%, so I wouldn't be rushing into this sector either.

Finally, we are currently favoring the U.S. stock market vs. the overseas markets. In particular, the emerging markets look very expensive vs. the U.S., particularly when you consider that the central banks in places like China and Brazil are trying to slow their economies. Only in the U.S. and Japan are governments attempting to help economic growth and, to us, you'd rather be investing in places where you have fiscal and monetary tailwinds.

Hope this is helpful,

Dave