PLAY IT SAFE
Peter Tuz, co-manager of the Chase Growth and Chase Mid Cap Growth funds (CHASX, rated 3 stars by Morningstar, and CHAMX, with 4 stars out of a possible 5), says fiscal cliff uncertainties are likely to hurt short-term stock returns.
"If there isn't a deal soon, I expect weakness, because markets hate uncertainty," Tuz says.
Asked what an investor might do in the short-term, he urged caution: "If a person were thinking about investing when the market opens on Jan. 2, I would partially defer that decision, and spread the investment out over the course of three to six months. That's because there will be lots of uncertainty, and you'll be able to take advantage of certain dips in the market that we'll inevitably see."
For the full year, Tuz expects a modest gain for the stock market of 5 to 7 percent: "That's reasonable, given the uncertainty we face."
SEIZE THE OPPORTUNITY
John Buckingham, manager of two 3-star funds, Al Frank (VALUX) and Al Frank Dividend Value (VALDX), is optimistic about dividend-paying stocks, citing the abundant cash reserves that many companies have now.
He maintains that outlook despite the likelihood that tax rates on dividend income will rise sharply starting in January for investors in the top tax brackets. That's the outcome if no deal is reached in the fiscal cliff talks by Monday. A dividend tax increase could also be included in any agreement that's reached.
"Clearly, what's going to be more important to the market than higher dividend taxes is the health of corporate profits, and the economy," Buckingham says.
Investors clearly remain nervous, as withdrawals from stock funds have consistently exceeded deposits this year. Yet Buckingham sees that as an opportunity, concluding that investors' fears are a key reason why stocks are priced inexpensively. He wouldn't be surprised to see the market return 9 to 12 percent next year.
"The pendulum will always swing between fear and greed," he says. "And we've swung way too far toward fear in recent years."
Questions? E-mail investorinsight(at)ap.org