Wondering where to put your money in 2008? It may seem like all the choices are bad, and I'm not talking about the presidential candidates. Stocks, bonds, real estate, and money market funds have all been underwhelming — at best. Chinese stocks, gold, oil and India suggest bigger gains but also much bigger risks.

It could be a wild ride.

The year 2008 is an election year; they're usually bullish. But it could be a slow (or no) growth year; a year in which recession AND inflation are very real possibilities, and in which it's worth remembering that the worst times always precede the best times.

It's also worth remembering this caveat from Tim Swanson, chief investment officer at National City Bank: "Markets often move in the direction that the fewest people expect."

With that said, here are some observations and trends about where to put your money down in 2008.

• The economy. The comments by economists about the 2008 landscape are a festival of on-the-one-hand, on-the-other-hand predictions, but they can be boiled down to a big ho-hum.

The housing slump will continue downward pressure; globalism will help keep things humming. The weak dollar and low interest rates could signal growth; the tapped-out consumer could snuff it. Bottom line? The prevailing prediction is for a sluggish 2008; maybe including a full-fledged recession, and maybe not.

• Stocks. That means investing in the right stocks for the right time. Think consumer necessities: the toilet paper and toothpaste stocks.

Next year seems like a year in which consumers who don't have to buy a car, for example, won't.

Think about sectors that sell what people need, not what they want. That includes health care and banks, according to Larry Adam, an investment strategist for Deutsche Bank. "The financial sector has historically been able to recover fairly quickly from a credit crisis," Adam notes.

• Volatility. This is the one thing virtually everyone expects. Learn to live with it and prosper, by trading around the edges of your portfolio. Keep a shopping list and buy on bad days; trim on good days. Don't try to catch the absolute top or bottom; just use the jumpiness of the markets to maintain a good portfolio at good prices.

• Inflation. Federal deficit spending, unpaid promises to baby boomers, the weak dollar, big foreign demand for materials, runaway oil prices are all signals of inflation to come. That's mitigated by opposing forces like the weak housing market and tight wages. But smart investors will keep some of their money in assets that do appreciate when prices heat up: paper products, food companies, metals, energy companies and more.

How much? Some pros keep it constant at 10 percent of a portfolio, others go above or below that line depending on how much they are worried about the inflation specter.

• Foreign stocks. Since 2003, foreign stocks have outperformed US stocks by more than 140 percentage points, according to Charles Schwab analyst David Kastner. That may mean the foreign stock part of your portfolio has now swelled beyond its intended proportions.

"Many sleepless nights could be in store... now that higher volatility has infected the global markets," Kastner said.

But globalisation is here to stay. Bottom line? If you haven't diversified into foreign stocks, there are good reasons to do so. But if more than 15 percent of your portfolio is invested in them, now might be a good time to pull back a bit. Be careful, too, about using today's super-cheap dollar to buy costly European securities; you might be buying at the top of both the euro and of Euro-stocks.

• Real estate. All of the things everyone said three years ago — they're not making any more of it, it's an investment you can enjoy, mortgage rates and tax breaks make it even better — are still true. Only now prices are lower. Nobody is telling investors to run into the condo-flipping market on Monday. But 2008 probably will be a good year to find some real estate bargains, either through careful house-hunting or by tucking a quality real estate mutual fund or exchange traded fund into your IRA.

One bright spot for real estate investors is private student housing, according to Millennium Credit Markets, a Troy, New York, firm which arranges private equity deals.

• Foreign bonds. It's no secret that most other governments and companies are paying higher rates of interest to their lenders than are US borrowers. Yields top 10 percent in Brazil, South Africa, and a host of other countries. Economists are predicting interest rate declines in Europe; investors who already own bonds there will profit when the rates fall. An easy, somewhat safe way to get some of this income is to invest in a fund that hedges currency, such as the Pimco Hedged Foreign Bond Fund.

• Domestic bonds. There's not much excitement here. Going into 2008, yields are low, and there's not a lot of room for further lowering them (which would push up total returns of bonds.) A stronger-than-expected economy could hurt bond investors; a weaker-than-expected economy still doesn't give them much to celebrate.

The exception? High-yield bonds of companies with questionable credit ratings.

The yields are better, as are the prospects, in either a strengthening or weakening economy. Protect yourself against default risks by buying them in a big, diversified mutual fund or ETF, instead of trying to pick and choose which risky bonds you want to buy.

REUTERS

(Linda Stern is a freelance writer. Any opinions in the column are solely those of Ms. Stern. You can e-mail her at lindastern[AT]aol.com.)