If part of your portfolio is still entwined with stock investing, now might be a good time to begin making concrete plans about how you’re going to divest yourself of that asset, and don’t come crying to us next year when the situation is even worse. Given the nature of this blog, we hope we have a bunch of real estate professionals reading this who have been fired up for a while about the benefits of income property investing and to whom this warning is unnecessary, but there are always a few stragglers.

Here’s what we expect to happen to the stock market in 2011.

1. The reality of inflation is not going away and, chances are, it will only get worse. This is bad news for anyone with substantial holdings in money-based assets like stocks, bonds, mutual funds and certificates of deposit. Even if stock investing were to have a good year on paper, with returns averaging say 10%, that’s nothing more than a break even on your investment because we expect inflation to be at least that high. We’re talking the REAL rate of inflation now, the one that includes food and energy prices, not the bogus government number that conveniently leaves these factors out of the calculation. Although if you don’t plan to consume any food or energy this year, you might come out alright.

2. Continued rampant speculation. About the time the Internet penetrated our mass consciousness and the 24/7 cable television news cycle began, a funny thing happened – the stock market went crazy, reacting like a decapitated chicken to political and natural disaster news from far flung corners of the globe. Makes it seem like, when it comes to stock market equilibrium, there is such a thing as too much information. These days, speculators swoop in to play natural disasters like they used to earnings reports.

3. It’s not getting any more ethical. The all clear signal hasn’t been given on the Street yet and Bernie Madoff wasn’t the last unethical stock market operator to take clients for a ride to poverty. Expect even bigger and better scams from Wall Street in 2011. Where they will come from is anybody’s guess but one thing’s for sure – come they will.

If old habits die hard and you are dead set on stock investing as a method to “proper” diversification, we can’t stop you, but would plead really hard that you minimize exposure to an increasingly erratic and unreliable asset.

The AIPIS Team

Flickr / mad LOLscientist