How to cash in on the economic recovery

Economists and investing pros increasingly think the worst is behind us. If you agree, here are 3 big-picture ways to benefit.

By MSN Money Partner Mar 14, 2012 5:14PM

Image: Arrow Up (© Stockbyte/SuperStock)

 U.S. News & World Report on MSN MoneyA year ago, the economic recovery turned out to be a false dawn. This time, however, it's looking like things could keep getting brighter.


The economy has been adding jobs for 17 months in a row, with the pace of hiring accelerating so far this year. Layoffs are abating, the stock market is rising and Europe seems to be patching up its financial problems. There are countervailing trends, to be sure, such as continued gloom in the housing market and incoherent policymaking in Washington. But with every passing month, the damage from a painful downturn heals.


Consumers are slowly growing more confident, but many remain gunshy after a shocking loss of household wealth and premature declarations of a recovery in 2010 and 2011. "People aren't acting in a way that's congruent with an improving economic climate," says Mark Luschini, chief investment strategist for Janney Montgomery Scott. "We're acting as if things are bad and likely to get worse."


It's hard to fault consumers for an enduring bunker mentality. Seismic shifts in the economy are making it harder to get ahead, and more wrenching change may be on the way. But playing it safe can be risky, too, especially if the economy is in a sustained phase of expansion. Missing out on opportunities can be just as punishing as getting blindsided by a recession, with people comfortable taking modest risks vaulting ahead of those armored against every gloomy scenario.


Shocks could still occur, but economists and investing professionals increasingly think that the worst is behind. If you agree, here are a few ways to make sure you're poised to cash in on the recovery:


Be more aggressive in your investing. Since the stock market bottomed out in 2009, it's been on a historic tear, with stock values more than doubling over the last three years. But that's been amidst a tepid recovery, one reason stocks could still have more room to run. Investment bank UBS, for instance, recently predicted that the S&P 500 index will end the year at 1475, which would be 7.5 percent higher than it is now.


Many small investors, however, have pulled their money out of stocks, fearful of another freefall like the one that occurred in 2008 and 2009. It may finally be time to overcome such fears. "If you really want to be ahead of the curve, get out of cash," advises economist Jeffrey Rosen of Briefing Research. "If the economy rebounds, equity prices will go up and profits will go up." As bullish sentiment begins to spread, that alone could boost stock prices, since a lot of money that's sitting on the sidelines would flood into the market, raising demand for stocks.


Luschini advises his clients to abide by the traditional rules of prudent investing: Get into stocks only if you've got a time horizon of five years or longer, buy high-quality shares that pay dividends, and focus on market sectors that have strong growth potential. But he also urges investors to view any recent losses as sunk costs, and to reassure themselves by taking a historical perspective. "We've had oil embargoes, world wars, assassinations," he points out. "The stock market has always found its legs and moved higher."


Stop waiting to buy real estate. Home affordability is the best on record, thanks to falling prices and the Federal Reserve's aggressive efforts to push interest rates down. Yet home sales are tepid, with many buyers spooked by the turmoil of the last five years. That mismatch may represent one of the best buying opportunities of modern times.


Clearly, some people who want to buy a home can't get financing. But others are simply waiting it out, worried that prices may fall further. That makes sense, but a housing bottom isn't going to announce itself in real time. It will only be apparent after the fact, and there are many reasons to believe we may be very close to the bottom right now.


Average home prices have already fallen by more than 30 percent. An improving job market will increase demand for housing, while easing the type of financial pressure that leads to foreclosures. The formation of new households, which is usually a constant when the population is growing, has essentially stalled for four years. "We should see the end of the downturn in housing by end of the year, if not the beginning of next year," says Rosen. "If you're risk-averse today, you're going to be kicking yourself down the road."


Buyers trying to time the bottom and buy at the lowest possible price may be focusing on pennies while missing the big picture. If interest rates go up, for instance, that could negate a few thousand dollars you might save on the purchase price of a home. And for anybody buying a house for the right reason—to live in for several years, if not decades—it will make little difference in the future if you buy near the bottom or at the bottom.


Reinvigorate your career. For the last few years, a lot of workers have focused mainly on holding onto their jobs, while putting aside plans to try something entrepreneurial or bust a risky career move. But it might be time to dust off your dreams and think big once again.


Data from the Labor Dept. shows that more people are quitting their jobs, a sign that workers are becoming more confident about new opportunities and finding better work. Executive recruiter Susan Goldberg of New York says that anybody who's been in the same job for three years or longer without gaining any new responsibility ought to start freshening their skills and looking for ways to move up, or move out. A few years ago, needless to say, nobody was hiring. But lately, more opportunities have opened up, and some workers who leave their firms are even startled to get a counteroffer inducing them to stay.


It may also be a safer time for people disenchanted with corporate life to take a chance on an upstart firm. "There's not as much stability in big firms as there used to be," says Goldberg. "Small companies can be more adaptable and more flexible, and make people feel like they're valued more." Now there's a quaint idea: A company that cherishes its workers. If that catches on, good times truly will have returned.


Rick Newman is the author of Rebounders: How Winners Pivot From Setback to Success, to be published in May. Follow him on Twitter: @rickjnewman


More from Rick Newman:

Mar 14, 2012 8:40PM
Home prices are falling.  

15 MILLION cannot find work.

America is 15 TRILLION in debt.

The debt service is close to the GDP.

America has spent it's way into a mild recovery.

Talk about success.
Mar 15, 2012 6:46AM
wow, I've seen some disgusting propaganda "news" articles in my time, and must say this one ranks right up there.  It stinks of sell-side analyst and CNBC "buy, buy, buy" bullcrap.  Central banks globally injecting $7 trillion into the "markets" is NOT "recovery".  Idiots...
Mar 14, 2012 11:09PM
Theres only one problem. One needs extra money to invest. But if you can find a job today it pays 50% less than before this mess. non living wages don't allow for investing
Mar 14, 2012 7:58PM
Mar 14, 2012 8:39PM
True, stocks may still have room to grow, but wasn't 2008 an even better time to invest? S&P 500 has more than doubled since then.

But nobody was telling me to invest then...
Mar 15, 2012 12:12AM

Wow! Things are doing great (sarcasm) just in time for Barry's re-election bid. We can all relax now and spend freely, whew.


Now that the DOW is back over 13K let me load up on stocks so I can ride the freefall back down!!   

Mar 15, 2012 1:35AM
Come on people. Buy stocks now when the prices are high so that the rich investors can sell all of their shares at a large profit so that the average investor gets burned again. What ever happened to Buy low and sell high?
Mar 15, 2012 1:56AM

Notice how almost every single article on the housing market since 2007 has claimed that now or the near future is the bottom?


These authors must have 2nd jobs as real estate agents and bankers.  I wish Vegas was taking bets on the accuracy of this article regarding the housing bottom.  Betting against that timeframe would be by far the best investment I am aware of at the moment.

Stocks need to be looked at individually.

Mar 15, 2012 2:41AM

Recovery???? WHAT recovery??? Gas prices are over DOUBLE what they were when Jokebama took office, housing is HALF what it was worth when Jokebama took office, Food prices are climbing every day, the stock market has been artificially inflated by a bunch of left-wing liberals who think that they can report false figures just to get Jokebama re-elected, and the same for unemployment numbers, which are a national JOKE. This is utter crap, spurred on by the bias leftist media. Typical. I am scared I won't have social security and that I will have to work until I am 90 freakin years old!!! Even then I won't have any money to live on, thanks to Jokebama and his so-called "programs". Steal my hard-earned money, you SOB...

RECOVERY??? My *SS!!!!

Mar 15, 2012 9:40AM
I like how everyone continues to whine.  I worked three jobs in 2008(and never whined) and it did not look as if I was going to make it.  I am doing great compared to 2008, I work one job, have money to invest and I have an average job.  I am interested in investing into my future and MY CHILDREN'S' future.  People are just envious of recovery because they think it comes to them, no, you have to grab it and make your life what you want it to be.  I have had to change my career and take advantage of change.  I find any information given to me helpful and if it is not helpful to you, move on without whimpering.  Too many Americans sit in their homes expecting life to change around them.  I am going to enlighten you..... you have to make the change.  You cannot sit at your old job where everything was handed to you.  This is how we became a nation of debt, we expected top dollar for minimal performance.  No one wants to purchase our over priced products.  Those days of undereducated, high paying jobs are over, now move on.
Mar 15, 2012 11:17AM
Lots of cheap if not free money was given to banks....they invested it in the same derivatives markets they did before in order to make the most they can....and barely loaned out any of that money to the poeple and businesses that it was supposed to help.  If Congress gives out money with little or mo strigns attached then this is to be expected.  At some point all that free money shows up in higher prices for EVERYTHING!!!  Which is what we are starting to see. 
Mar 15, 2012 10:44AM

Two of this article's suggestions require "cash" to "cash in".  With all that has happened during this recession.  Where the heck is the AVERAGE person going to find money to invest?  Oh yeah, that's right.......from all the money the AVERAGE person has acquired during these recent times. 


Mar 15, 2012 10:17AM

Republican1, as I read further into your comment....if you are going to live until your 100 then you SHOULD work until you are 90.  The social security system was originally set up to retire for 5 to 10 years.  We have retirees expecting to use the system for 25+ years, IT CAN NOT SUPPORT YOU FOR THAT PERIOD OF TIME!!!!!  Your contributions DO NOT equal the amount you are trying to suck out of the system.  You cannot  ask your children to produce excess money to make the system balance.  Walk into a college, as I have at the age of 49 and analyze what needs to be done to produce more income later in life.  My parents did not retire until they physically could not benefit society any longer.  My best friends parents (age 79 and 81) just retired from federal jobs and are looking for part-time jobs.  She runs 4 miles a day because she likes the exercise and she is bored.  They have plenty of money but they know they need to benefit society not burden it.  They do this for themselves as well as the children(even yours) in the U.S.  So forget politics for a second and step up to the plate and change your views.  No one owes you a retirement life of luxury....our grandparents and great grandparents worked their arses off to the end. 

Mar 15, 2012 12:23PM
Another article about how the economy is recovering.

The bigger the lie, the more people will believe it. Josef Goebbels


Mar 15, 2012 12:40PM
More people working??  You mean more people have fallen off the unemployment roles.  Sure the economy is getting better!!
Mar 15, 2012 11:16AM
Once there is an ACTUAL economic recovery, I will read this article.
Mar 15, 2012 1:12PM
How can you say the economy is getting better when just yesterday msn reported that more middle aged people are moving back with there parents because of financial problems
Mar 15, 2012 1:35PM
Back in the great depression, there was a recession for two years prior. Then the gov't doing much like they done today, intervened and the economy showed promising improvements for a year. Then the stock market crashed and the depression hit. History repeats itself. This mess isn't over with yet.
Mar 15, 2012 10:30AM
In the near future robots will be doing are jobs.
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