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As we pass the first anniversary of the market meltdown, many investors have started to get much more comfortable putting their money back into stocks. But investors are more excited about some parts of the market than others. Should you follow their lead and invest in these hot areas, or will latecomers to the market rally end up disappointed?

What the hot money's buying
According to The Wall Street Journal and fund tracking firm EPFR Global, last week saw one of the biggest moves into stocks all year. Money market mutual funds posted a weekly withdrawal figure that was the second-highest in all of 2009. Here's a short breakdown of where the money went:


Net Fund Inflows

U.S. Bond Funds

$2.8 billion

Commodity-Sector Funds

$1.1 billion

Real Estate Funds

$925 million

Emerging-Market Bond Funds

$540 million

U.S. Stock Funds

$340 million

Emerging-Market Stock Funds

$299 million

Source: WSJ, EPFR Global.

These numbers paint a mixed picture about what's going on in the financial markets. On one hand, the figures appear to follow a familiar pattern, in which investors move money out of ultra-safe investments only after prices of riskier assets have already risen substantially.

Yet this time around, the situation doesn't look as dire as it often does. Although investors are leaving the safety of cash, they're putting a lot of money into fairly conservative investments like bonds. And although that comes with its own problems, it suggests that not everyone is jumping back into the stock market without reservation.

Grasping at straws
Judging from the stocks investors are buying, though, chasing performance is alive and well. Here are some examples of investments in each of the inflow-intensive categories listed above: 



Return (YTD)

Freeport-McMoRan Copper & Gold (NYSE: FCX  )



Mosaic (NYSE: MOS  )



Simon Property Group (NYSE: SPG  )

Real Estate


Vornado Realty (NYSE: VNO  )

Real Estate


Vale (NYSE: VALE  )

Emerging-Market Stock


Baidu (Nasdaq: BIDU  )

Emerging-Market Stock


SPDR Trust (NYSE: SPY  )

U.S. Stock


Source: Morningstar. YTD = year to date.

At least on the stock side, investors appear to prefer the high-risk, high-reward prospects right now. With gold's rise to $1,000 per ounce, and other commodities performing even better, many stocks in the sector have seen dramatic rises during 2009. Meanwhile, given the relatively small size of emerging markets compared to the U.S. stock market, the relatively small difference in inflows shows just how attractive investors find the continuing growth that economies like China's are experiencing.

Perhaps even more astounding is the big bet that investors are making on real estate. Although residential real estate prices have recently seen their first monthly gains in years, investors seem to be ignoring concerns that the commercial property market may be the next to suffer from major economic problems. One major REIT index is up about 22% so far this year, with components that include both residential and commercial real estate investments.

The right move now
The first thing you should understand about these numbers is that they have an extremely short-term focus. Weekly fund flow data won't give you the best gauge of long-term investment trends, and what's happening in any given week can change dramatically the next. If you try to follow these trends, not only will you end up whipsawed from week to week, but you'll also find yourself getting in on every hot investing fad a little bit too late.

However, that doesn't mean that those investments are inherently bad. There's a place in your portfolio for all of the categories of investments listed above. A truly diversified portfolio might well include small portions of all of those categories, as well as others not listed there. And if you lack enough investments in a particular sector, then it might even make sense to buy even after prices have already risen.

However, you shouldn't count on trying to use this data to make a lot of money quickly. Although you might get lucky, you could easily fall prey to a downturn when it comes. If you want to be part of the smart money, learning not to chase recent performance is your first lesson toward a richer future.

Want a hot tip? Warren Buffett is buying stocks, and Morgan Housel can tell you why -- and what you ought to buy today.

Fool contributor Dan Caplinger likes not being part of the investing in-crowd. He owns shares of Freeport-McMoran Copper & Gold and SPDR Trust. Baidu is a Motley Fool Rule Breakers selection. Try any of our Foolish newsletter services, free for 30 days. The Fool's disclosure policy gives the latest hot information first.

Read/Post Comments (8) | Recommend This Article (34)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 22, 2009, at 6:00 PM, prginww wrote:

    putting money back into stocks? you must be joking! after the greatest false rally since 1930 its time to be taking profits.if you missed this rally either wait find something other than stocks or put money in and lose it...

  • Report this Comment On September 22, 2009, at 6:07 PM, prginww wrote:

    Lately the stock market has been a very volatile ride. This past year's performance has been poor and with the rising fuel costs and credit crises these investment vehicles seem suspect. Certificate of deposit (CD) rates are not the best they have been but there are still bargains available from banks trying to build strong deposit reserves. Very conservative investors like CDs because most are insured with the Federal Deposit Insurance Corporation (FDIC). FDIC insurance allows account holders to get their money back in case of the insured banks failure. However, understanding how much and what is covered can difficult to understand. Talk with three different bankers at three FDIC insured banks and you will get a variety of answers to questions regarding whether your money is fully insured or not. If you have less than $100,000.00 in an FDIC insured bank you are fully insured. That is if your account is some sort of demand deposit account (i.e. checking, money market), savings account, or time deposit account (CDs). The insurance covers the balance of these accounts, principal and interest earned up to the day of the insured bank's closure. This is a very good thing to have especially with the state of today's economy and the challenging circumstances financial institutions are facing.


    Money without intelligence is like a car without a road.

  • Report this Comment On September 23, 2009, at 12:09 PM, prginww wrote:

    Yes, the markets are risky. The great buying opportunity was at the end of 2008. Those who lost 40-50% of their equity investments and pulled the balance out of equity markets are kicking themselves now, don't you think? There are still some excellent opportunities to make money in these markets, but it would be wise to insure that any losses resulting from a correction will be minimized by using stop loss orders and covered calls on long positions. For the long term (5+ years), I believe the equity markets are still the place to be to maximize returns.

  • Report this Comment On September 25, 2009, at 12:28 PM, prginww wrote:

    Don't beat me over the head here with this newbie question, but I've compared brokers and looked to see who is insured, but still scared to jump into the trading field....i need a big push....can someone please tell me the best broker to use? my first instinct was ShareBuilder but they are not I'm looking for another recommendation.

  • Report this Comment On September 25, 2009, at 2:26 PM, prginww wrote:

    I use Scottrade for my online trades.

    It costs $7.00 per buy or sell.

    I also heard of SOGO but it does not offer IRA or ROTH IRA'S at this time maybe early 2010. They have a on line buy or sell cost of $3.00 per trade. So if you have a taxable account you may want to look into SOGO as this is less than half of Scottrade.

    Like Scottrade SOGO does not charge any inactivity fees. Trade as much or as little per your investment goals.

  • Report this Comment On September 26, 2009, at 8:21 AM, prginww wrote:


    here are the 6 stocks with breaking news stories,,,

    #1... UTRM,,,, has began productionand their webiste will open up for the first time public sale on october 1st.

    #2,,,, AMNE,,, here is a company that just recieved 8 million more in asset. read all about this cost saving on your heating and cooling bill by going green..

    #3 ,,,,, BSRC,,, talking about going green, check this company that will cut cost in producing thin film solar panels with bio renewable plants. a big money saver pass to the consumers...

    #4,,,,,, CLMT,,,, here is a company that just recieved a 5 star rating that only 80 to 89 companies out of 5000 recieves.

    #5,,,,, CY,,,,,, one of the all time favorites thats always producing something new in the techo world, thumbs up for cypress semi conductors.

    #6,,,,, MLKNA,,,,,, here's a stock that is hanging between .65 and .75 , for months now.. it just doesn't seem like it can get pass that .75 range,,, but when it does, you can bet it will shoot up like a rocket..

    read more about MEDLINK..

    there you have my 6 news breaking stocks

    happy and good trading all

  • Report this Comment On September 26, 2009, at 12:51 PM, prginww wrote:

    for newbietothefool,

    Ameritrade has been very good for me. Full service banking + $9.99 trades. Live help.

  • Report this Comment On September 28, 2009, at 10:43 AM, prginww wrote:

    for newbietothefool, I have had many different brokers over time and have now been with Scottrade for over 10 years and no complaints. That would be my recommendation.

    To the post,

    Now is always the time to trade stocks! No matter what the overall market looks like, there are always great stocks to be bought and bad stocks. The trick is finding those great stocks!

    I always get a kick out of when I hear others talk about now is not the time to buy, March was an awesome time to buy, I did alot of buying then and all my co-workers told me I was crazy. Guess we all know who the fool was!


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