`It Doesn't Get Any Better Than This'

What a year! The U.S. stock market soared, delivering investors a total return so far of more than 37%--the best showing since 1975. And if the market moves up a tad higher as the year comes to a close, it will be the best since 1958. Even more amazing, bonds rebounded from a horrid 1994 and racked up double-digit returns. "Savor the moment," says H. Bradlee Perry, veteran money manager and retired chairman of David L. Babson & Co., who counts more than four decades of investing experience. "It doesn't get any better than this."

Perhaps not. Markets don't make such huge gains two years in a row. But Perry isn't retreating from the financial markets, nor should you. Sure, there are always risks of a market sell-off that will unnerve some investors. But the economic backdrop that helped produce the remarkable returns--low interest rates, low inflation--is still very much in place and will not be dislodged easily.

And the financial system is flush with investable funds. For starters, there's the cash pouring into mutual funds, which in turn flows into the stock market. "That's a standing order to buy $6 billion to $8 billion in stocks a month," says William E. Dodge, investment strategist for Dean Witter Reynolds Inc. The money's likely to stay invested since much of it is in long-term 401(k) retirement accounts. Investment strategist Charles I. Clough of Merrill Lynch & Co. points to the $350 billion that investors socked into money-market funds and certificates of deposit when short-term rates were high. With the Federal Reserve almost certain to shave rates, much of that money will find its way back to the stock and bond markets, too.

To help you plan your portfolio, we bring you Where to Invest in 1996, BUSINESS WEEK's annual investment outlook. This special double issue covers the investment world. Besides the lowdown on how to play the U.S. stock market, our global network of correspondents brings you the best investment ideas from Europe to Mexico to Japan and the rest of Asia.

Before you start globetrotting, get yourself a solid grounding at home. Start with the economic outlook, which sketches the look of the U.S. economy in the new year. (Hint: It looks slow.) Then, our Washington correspondents bring you an analysis of what's likely to happen in the budget negotiations between President Clinton and the GOP-controlled Congress. But investors' interest doesn't end with the budget. There's plenty to watch out for as the Presidential election year unfolds.

Move on to stocks, and start by checking in with a new feature, a survey of top-flight stock market strategists from some of the leading investment firms. Who's the most bullish? The most bearish? And what is their collective wisdom? Many are still bullish on technology stocks. So are we. Prices are down, so there are good opportunities. Merger mania, another major theme of 1995's stock market, should continue into 1996. Small-cap stocks, which did well but still trailed the big companies in 1995, may move out in front in 1996.

Want more? Pick up some leads from the portfolios assembled by our handpicked pros using the make-believe $100,000 we have asked them to invest. Don't forget to check out Inside Wall Street. And don't make a move before reading the story that starts on page 90 for those stocks that ought be avoided. The Investment Outlook Scoreboard provides plenty of data to back those ideas up with your own research. If you prefer to let portfolio managers pick your stocks, turn to the mutual-fund review to find out which ones have done the best picking of late.

Of course, there's more to investing than just buying stocks. If you're a bond buyer, check out the story on page 110 for the best deals in today's low-yield environment. You might find them among the tax-exempt municipal bonds. And there are opportunities in more tangible assets as well: commodities, real estate and fine art.

It may be tough to duplicate 1995's investment results. But with a few smart ideas, you might be surprised.

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