With the bull market entering its third consecutive year, investors are growing cautious about the returns of the investment market. Higher interest rates, surge in commodity prices and federal budget struggles are more than enough for the investors to remain watchful this year. As the global economic crisis continues to resound through the global investment markets, the financial analysts are of the opinion that tight credit markets, consistent economic uncertainty and reduced tolerance for risk will dominate the investment decisions taken by most investors this year. Here are some top investment trends of 2011 that will help you know the nooks and corners of the investment market and take an informed and measured step.

1. Investors will take a defensive step: Since this is the third year of bull markets, it’s high time that there is a definite transition in the investment market. As 2011 goes on, investors who had invested in stocks that have appreciated sharply are shifting into a more defensive stance, according to the opinion of some investment experts. While the investors are questioning the sustainability of the ever-increasing bull market, they are embracing the sectors where demand is always static. This strategy for 2011 will push a large number of investors towards energy, health care and utilities.
2. Stocks of large companies will be ‘in’: Historically, it has been always seen that when the investors become extra watchful regarding the stocks, the small and mid-sized companies have suffered. Comparatively, the stocks of the large sized companies fare better than them because the investors then prefer to remain with a larger company than tolerate the risks of investing in a small company.
3. Investment strategies will be based on evolving risks: The outlook of inflation is entirely different with the emerging and the developed markets. However, the investment experts are of the opinion that the wage and price inflation may stay in check in the US for the next two years with the continued surplus capacity of the US economy. There is low inflation in Europe and deflation in Japan. However, in China, India, Russia, inflation has risen sharply and the lawmaking authorities have started raising the interest rates to ease off the economic pressures.
4. Investors will review their reliance on equity risk premium: According to the valuable opinion of some investment analysts, the investors will review the role of equities on their investment portfolio since the after-effects of the global financial crisis. Only investing money in stocks of companies that have an exceptionally high growth rate will not be enough in 2011. They also have to concentrate on the diversification of their portfolio and consider whether investing in equity funds may benefit their investment portfolio.
5. Lift in oil company stocks: The price of oil in the last quarter of 2010 has been $90 a barrel. The last time oil finished with a strong value was in the year 2007 with $96 a barrel that skyrocketed to $145 a barrel by the second quarter of 2008. Unfortunately, the stock prices of the oil companies rarely surged in 2008. Since then the rising price of oil was not converted into the rising price of stocks. However, the financial analysts do not see the same thing happening this year. Therefore, the oil company stocks will preferably get a boost with the hike in the price of oil.
6. Investor’s flight to emerging markets: The emerging markets or the nations that are gradually becoming advanced are inviting investors as they’re experiencing rapid growth. India, Russia, China are some of the emerging markets and may also show GDP growth that will be two-times higher than that of USA. Experts predict that investors will look for more opportunities to invest in such markets.

Investors in 2011 will shift slowly from low risk investment to investments with higher yield but due caution has to be maintained within the industry in order to avoid the repetition of the same thing that most investors faced in the late 2000s. Investing in alternative energy and emerging markets will be among the top investment trends this New Year.

On the other hand, active real estate investing means the purchaser is actually actively involved in the management, tenant search, maintenance and rent collection.  This method is generally more time consuming, but can have major tax advantage compared to passive investing.

Passive property investors can mainly deduct expenses such as mortgage interest, home insurance, maintenance repairs and depreciation against the earned income from their properties.  On the other hand, active property investors can deduct similar expenses against their property income as well as other means of income.  This means if the active investor has other income streams from other jobs or investments, the deductions from real estate are first taken against the real estate income, and then taken against any other income assuming there is still a deduction remaining.

There is a fine line between hiring a property management company to manage a property and still being considered an active investor.  Most people do this by documenting any time spent preparing or maintaining the investment property by themselves, recording milage driven to the property for any services or repairs done or rent collection, and documenting any decisions made by you which were requested by the management company.  By doing these simple things, you can still be partially considered an active investor, and reap some of the tax benefits.  Be warned however that the deduction limit is only up to $25,000 total from all properties that can be used against other streams of income in this scenario.  The deduction limit is much higher if you are truly considered an active investor where you manage your properties and spend the IRS required amount of time per year dealing with investment properties or real estate.

As you can see, active investing or hiring a management company and being involved to get partial active investing tax benefits is well worth the time.  This is the case especially if multiple properties are considered resulting in large depreciation deductions each year.

Tax laws change yearly, please consult your tax expert for the latest details and changes to investment property and real estate tax scenarios and laws.

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