Investor Dilemma: What to Buy In a Slow-Growth Economy?

The other day a client walked into the office of Josh Brown and asked, “Let’s say we’re at low growth and low interest rates for the next five years and you could only hold one thing, what would it be?”

“Buy the iShares Morningstar High Income ETF and go play golf,” answered the financial advisor for New York-based Fusion Analytics, referring to a fund that invests in high yield bonds and dividend-paying stocks.

After the government said Friday gross domestic product  expanded at just a 2.2 percent annual rate in the first quarter, more financial advisors better get ready to answer this question from return-craving clients.

There seem to be two camps in tackling this dilemma: invest in the bonds or stocks of cash-rich companies that have yields above two percent or take the riskier route of picking the correct stocks that can outgrow this economy through innovation.

So far this year, investors have been betting on growth stocks to stay above the sluggish economy as the iShares Russell 1000 Growth Fund is up more than 12 percent in 2012, that’s better than the 7.8 percent return for the iShares Russell 1000 Value Fund.

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