How QE2 Could Affect Your Money

Experts say the Fed is trying to force investors into riskier asset classes.

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In Pictures: 6 Sectors to Watch in 2011

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[See With New Fund, Gold Isn't All That GLTRs.]

Emerging markets stocks. Investors may be fleeing U.S. stocks, but they're warming up to emerging markets stocks. Emerging markets stock funds have seen inflows of $21 billion from the first of the year through the end of October. The reason, Krosby says, is that economic news in these countries has been more positive. Countries like China and India came out of the global recession much stronger than their developed counterparts. The International Monetary Fund predicts that developing economies will expand at a rate of 7.1 percent in 2010 and 6.4 percent in 2011. Growth for developed countries is projected to be only 2.7 percent in 2010 and 2.2 percent in 2011. Just because these countries are growing at higher rates doesn't necessarily mean they will always be a good investment. "A market, regardless of the underlying growth, can actually become overvalued, and perhaps U.S. investors will start seeing the values in the U.S. equity market and realize that you need to diversify," Krosby says.

U.S. stocks. Given the slower-than-expected recovery in the United States, Krosby suggests investing in large, well-known U.S. companies that do a lot of business in emerging markets. About 35 percent of the sales of S&P 500 companies come from abroad, according to S&P international equity strategist Alec Young. Of that 35 percent, between 10 and 20 percent of the companies' sales comes from emerging markets. "What we've suggested to clients is that you can penetrate the growth in the emerging markets via many of the U.S. names in a broad swath of sectors," Krosby says. S&P recommends blue-chip, household names like Coca-Cola and Wal-Mart, both of which it rates a "strong-buy." Wal-Mart is in the midst of acquiring a South African company, and Young estimates that Coke makes about a quarter of its sales in emerging markets. S&P recommends allocating 45 percent of your total portfolio to U.S. stocks and 7 percent to emerging markets stocks.

[See 3 Funds for Easing Back into Stocks.]

Treasuries. The Fed's stated goal is to lower the yield of long-term treasury bonds, which means trouble for savers who depend on relatively safe investments like treasuries for income. It remains to be seen how successful the Fed will be in lowering yields after cutting the fed funds rate to virtually zero almost two years ago. Earlier this week, treasuries have experienced a bit of a sell-off, and their yields have spiked near 3 percent. Other savings rates still remain near historic lows. Investors should be cautious. "Does anyone believe in their heart that in the next 10 years, that a 10-year treasury at 2.6 percent is going to outperform stocks?" Satovsky says. "I don't think too many people believe that, but many people are structured as if they believe that." He stresses the value of diversification for investors who may have loaded up on low-risk assets during the downturn. Satovsky suggests that investors tilt their portfolios globally and diversify among corporate and government bonds.

[See QE2: Potential Winners and Losers.]

Corporate bonds. The same bullish argument that can be made for U.S. stocks can be made for U.S. corporations that are issuing debt. "I think that right now because of the strong attention that people have put on U.S. treasuries—and the flight to safety at several points over the past couple of years—there is more upside on corporate fixed-income, especially on large, internationally diversified fixed-income," Torralba says. He recommends investing in the bonds of U.S. companies with large exposure to other markets, especially developing economies. A word of caution: High-yield debt has also performed extremely well lately. In 2009 alone, the average junk bond fund was up 47 percent. Year-to-date, the average junk bond fund has returned 13 percent. Krosby warns that the rally may have passed. She says investors should stick to higher-quality bonds because they aren't currently being compensated enough for taking the risks associated with investing in junk bonds, which are more likely to experience defaults than investment-grade bonds.