Like animals slowly peeking out of their dens following a bad storm, investors are cautiously tiptoeing away from the security of low-risk (but low earning) investments like certificates of deposit, back towards higher-risk investments with the potential for greater earnings. With a growing demand for alternative energy and technology, as well as increased interest in emerging markets, 2011 offers a wealth of opportunities for interested investors. Here are five of this year's top investment trends. (For an overview of investing, refer to Investing 101.)
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- Rare Earth Metals (REM)
Seventeen elements on the periodic table comprise the rare earth metals. While many of us have never heard of gadolinium, which is used in the manufacturing of computer memories, or thulium, used in portable X-Ray machines, these and the other rare earth metals are hugely important to today's technology and future technological advances. Despite their title, most rare earth metals are not particularly rare; however, they tend not to be found in significantly concentrated amounts, and the extraction process has its complications, including extremely toxic byproducts like cadmium entering the water supply.
Rare earth metals are necessary for an ever-growing list of electronic and technological products, including jet engines, flat panel televisions, cell phones, hybrid and electric vehicles, lasers, nuclear batteries, medical devices and superconductors. The world's collective dependency on these products and forthcoming advances make rare earth metals an intriguing investment opportunity, through exploration and processing companies like Avalon Rare Metals (NYSE:AVL) or exchange traded funds such as Market Vectors Rare Earth/Strategic Metal ETF (NYSE:REMX). (For additional information, see Rare Earth Metals: Shrinking Supplies Amid High Demand.)
- Alternative Energy: Solar, Nuclear, Wind, Wave, Broad Clean Energy
With oil prices once again soaring, and an acknowledgment of the urgent need to develop green, alternative energy sources, investors are becoming increasingly interested in solar, nuclear, wind, wave and broad clean energy. As an example of the type of growth alternative energy is experiencing, Worldwide Energy & Manufacturing USA (OTCBB:WEMU), a supplier of photovoltaic solar modules under the Amerisolar brand, recently announced it is projecting a 165% increase in revenues.
Investment opportunities include "green" exchange traded funds, such as PowerShares WilderHill Clean Energy Portfolio (NYSE:PBW), PowerShares Global Wind Energy Portfolio (NYSE:PWND), and Market Vectors Solar Energy ETF (NYSE:KWT), as well as stock shares for any of the many companies that are engaged in the research, development and distribution of alternative energy.
- Electric Cars
Electric cars could be the vehicles of choice in the future, and are expected to significantly impact the automobile industry. Improvements to batteries in the most recent electric cars (with ranges up to 100 miles on a single charge), coupled with rising gasoline prices, carbon dioxide emissions concerns and the desire to reduce our dependence on oil, all point to an industry that is poised to take off.
Automobile manufacturers like General Motors (NYSE:GM), Ford Motor Company (NYSE:F), Toyota (NYSE:TM), Tesla Motors (Nasdaq:TSLA) and Honda Motor Company (NYSE:HMC) are banking on a growing demand for hybrid and electric cars, such as the recently launched Chevy Volt, deemed by maker General Motors to be an Extended Range Electric Vehicle (or E-REV) rather than a hybrid. Despite range anxiety, or the fear that one's charge will run out before reaching the intended destination, electric cars are expected to grow due in part to the increasing availability of charging stations. Investment opportunities in the industry exist within the companies that research, develop and manufacture the technology behind the electric cars, such as electric car battery maker Ener1 (Nasdaq:HEV) and the automobile manufacturers themselves.
- Emerging Markets
Emerging markets, or those nations that are progressively becoming more advanced, are appealing to investors because they often experience rapid economic growth. Some emerging markets, including India, China, Russia and Brazil, may show GDP growth that is two times the expected increase in the United States. As these countries grow socially and economically to compete with the more developed countries of the world, an estimated $6 trillion will be spent in the next three years on infrastructure development in emerging economies. Exchange traded funds, like Vanguard Emerging Market ETF (NYSE:VWO) and iShares MSCI Emerging Markets Index (NYSE:EEM) provide investors with the opportunity to diversify their portfolios with emerging market exposure.
- Dividend Paying Stocks
Yields on many assets remain low, and investors, slowly entering the stock market after huge losses during the financial crisis of 2008, are looking for companies that offer high dividend yields. Investing in these companies can provide opportunities for long-term growth as well as a steady income stream from the dividends. Individual investors can invest directly by purchasing a company's stock, or can use a Preferred Stock ETF such as iShares S&P U.S. Preferred Stock Index (NYSE:PFF) or PowerShares Financial Preferred (NYSE:PGF). (Seven words that are music to investors' ears? "The dividend check is in the mail." Check out Why Dividends Matter.)
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The Bottom Line
As investors move gingerly from low-risk, low-yield investments to higher-risk, higher-yielding instruments, due caution will be exercised to limit the risks of a repeat of what many people experienced during the late 2000s. As such, investors will be looking for opportunities that show the potential for long-term growth. Investing in emerging markets, alternative energy, tomorrow's technology and stocks and ETFs with high dividend yields are among the top investment trends for 2011.
Note to readers: The investment opportunities included in this article are examples only and do not represent any actual positions held by the author. The article is intended to introduce readers to these types of investments, and not to make any inferences or recommendations regarding specific investments.
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