Patricia Lovett-Reid

2009 is drawing to a close and what a year it's been. It felt like the sky was falling in January and February and by March 6, 2009 it felt like it did. The S&P/TSX Composite index fell to a low of 7,480 — down 50% from its peak. And then, it was the beginning of what may have been one of the greatest investing opportunities in a generation. Stocks roared on the back of a recovery in corporate earnings. The loonie rallied. Commodities, metals and gold enjoyed tremendous gains. Some investors made a lot of money. Others who remained on the sidelines missed out on recouping their losses.

But what about 2010? Most strategists are optimistic and predicting further growth — with S&P TSX Composite Index targets in the neighbourhood of 12,300. Others worry about the potential for a double-dip recession once stimulus spending eases and interest rates start rising from historically low levels.

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What's an investor to do?

Everyone is different — your portfolio will differ from your neighbour's depending on your risk tolerance and your particular goals. But here are some general themes worth paying attention to in 2010.

Stick to a balanced asset mix of blue chip dividend paying stocks and investment grade bonds or a portfolio of mutual funds which replicate such a strategy. This is the best approach for most investors.

Let's compare the performance of an equities only portfolio, invested solely in the S&P/TSX Composite Index with a balanced portfolio made up of 50 per cent stocks (in the S&P/TSX Composite) and 50 per cent in the DEX Universe Bond Index. The equities-only portfolio would have depreciated by just over 50% from the peak in June 2008, to the trough in March 2009. In comparison, the balanced portfolio would have suffered a 22 per cent loss.

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Even after the recovery at the end of November 2009, the stock portfolio would have been down 23 per cent. As for the balanced portfolio, it would have been down less than 7 per cent. For 2010, given that stocks are reasonably priced and there is still a wall of liquidity on the sidelines, investors with an above average risk tolerance could consider overweighting a bit in equities.

Look to corporate bonds. Medium-term investment grade bonds yield, on average, 1.1 per cent more than similar government bonds. Also, consider real return bonds to guard against any unexpected surge in inflation. These federal bonds provide investors a return that varies based on the rate of inflation.