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T. Rowe: Low rates are market's biggest 'anomaly'

Associated Press Modified: November 29, 2012 at 12:58 pm •  Published: November 29, 2012

Q: What are some of the lessons that you have learned from the market this year?

A: Broad diversification across global fixed-income and stocks makes sense for just about everyone. This year U.S. stocks have done better than most, after a long period when emerging markets and international markets did better. I would bet you, that over the next five years the outcome is probably going to be different. Judging and picking when those outcomes are going to happen is a very hard game, even for a professional.

Long-term orientation to your thinking also makes sense. People who are trying to guess the short-term legislative iterations are just going to be frustrated.

An individual's ability to handicap that is very low. So, getting a sensible long-term allocation, sticking with it and sticking to your plan, makes an enormous amount of sense.

Doing your homework makes sense. If you look at a lot of company situations where the management team and the board haven't done a good job; where the board has been distracted; where there's been a lot of change and turnover in the management -- some of the basic signals that companies send are really worth paying attention to. Trying to find situations where companies are doing sensible things; that's really important.

Q: What are your expectations for 2013?

A: Typically, early in new Presidential terms, administrations try to get the hard work done and take some pain to deal with the issues. So I'd expect a modestly positive but not particularly great market, I'd expect Congress to try and get its arms round taking some hard medicine for the country. That will send positive long-term signals but will keep a lid on growth in the near term.

I wouldn't expect extraordinary return over the next year but, I think, over the next five to 10 years you could probably expect 6, 7 or 8 percent compounded annualized returns from stocks, and maybe in the order of 3 or 4 percent in a mixture of bonds. It's slightly below long-term averages for both categories but still not really bad results. The country is working off a lot of its excesses. A lot of our peers around the globe are beginning to work off some of their excesses — even in Europe.

We feel better about emerging markets over the next three years than we have in quite some time, given that those markets have lagged and their economies have continued to grow.