Where to invest now: the year started off with the economy sending mixed signals, so what can you expect for the rest of 2007?

MAJUANA MARTIN ISN'T A NOVICE when it comes to real estate. Ask her about the condo she bought for her daughter Breana, a senior at Hampton University, and she can rattle off a detailed description, complete with square footage. Sporting a price tag of $85.000 in 2005. the 1,300-square-foot, two-bedroom condo in Hampton. Virginia, is now worth an estimated $175,000. "That's going to be [Breana's] nest egg," says Martin. "My goal is to teach her about finance." And it appears that her interest may be rubbing off: Breana, 22, sits on the board of her condo association.

Martin, who works as an IT consultant for AT&T, has made a substantial investment in real estate and estimates her total equity to be valued at $320.000. In addition to her daughter's condo, the 51-year-old divorced mom owns her home in Oakland, California. and last year purchased an investment property that can provide two sources of income: A three-bedroom house and a one-bedroom cottage sit on the lot, Martin says she clears about $700 a month from her investment.

But these are uncertain times for many homeowners, as forecasts of declining housing prices abound, "While the [local market] has slowed, houses are still selling," says Martin, showing little sign of anxiety. Her outlook is bolstered by her diversified holdings and the $220.000 she has in her investment accounts.

So what do the experts say about what's in store for the rest of the year. and how can those market trends work for you? BLACK ENTERPRISE sought advice from top money managers about real estate, stocks, and bonds. From interest rates and initial public offerings to foreign stocks and the depreciating dollar, here's what they had to say. Take notes and ms p out how to make 2007 your breakthrough financial year.

REAL ESTATE: FINALLY A GOOD THE FOR BARGAIN-HUNTERS

if there was any doubt that the epic real estate boom has drawn to a close, consider that doubt dead and buried. Sales of new homes fell by 17.3% in 2006, the sharpest decline in 16 years: and inventory is piling up as the number of canceled contracts spikes and homes sit on the market for longer periods of time.

It was bound to happen. But a real estate slowdown doesn't have to be a negative thing. It can be an ideal time for savvy investors to go bargain hunting suggests Bernard Beal, CEO of financial services firm M.R. Beal & Co. in New York. The increased housing supply means that the creaky residential market could stay that way for the rest of the year. As speculators leave the market and real estate goes out of favor, Bed thinks it might be time to swoop back in. "Because of the market's softness it might be an opportune time to buy," he says. "But it's certainly not the best time to sell."

Real estate isn't defined by just the residential market, though. While a home is the greatest investment for most American families, real estate investment trusts, or REITs, continue to gain in popularity. These investment vehicles allow an investor to tap into commercial real estate, such as apartment buildings, hotels, or shopping malls, without acquiring the typical headaches involved in being a landlord. And they've enjoyed a truly spectacular run--the U.S. REIT index has produced returns of more than 30% for three of the past four years.

But will these glory days continue? "Trees don't grow to the sky," concedes Quintin Primo, chairman and CEO of the real estate investment management firm Capri Capital Partners in Chicago. Though the next five years will likely see the REIT sector cool off, the next 12 to 18 months should continue to see that level of performance, he predicts. That's because macro factors-such as private equity firms snapping up REITs and investors stocking up on real estate to diversify their holdings beyond stocks and bonds--show no sign of abating. And don't forget the powerful lure of the dividend: By law REITs are required to distribute 90% of their income to shareholders.

As for the residential market, it may bottom out, predicts Primo. Thanks to key drivers such as immigration and a population surge of young Americans entering their prime home buying years, real estate--while undergoing some gyrations at the moment--may be a better place for investors than doomsayers can foresee. Says Primo, "In the next six to nine months I think we'll begin to see growth evidencing the fundamental health of the housing market."

STOCKS: A GOLDILOCKS MARKET--BUT TREAD CAREFULLY

Rather than real estate, the primary investment vehicle for Wilbert and Marie Tremble of Atlanta has been the stock market--through their 401(k) plans in which they've already set aside some $400,000. In the year ahead the couple has some important financial decisions to make as they provide for their three sons, Brandon, Christopher, and Matthew.

It's a critical year because the General Motors plant where Wilbert, 39, works as an industrial engineer is scheduled to close in 2008, maybe sooner. Rather than stay with GM and relocate his family, he's evaluating his next career move. So while he and Marie, a 42-year-old supervisor at Home Depot, together earn more than $120,000 a year, they figure 2007 is the year to get serious about planning their financial future.

Part of their long-term plan involves a career change for Marie, who aspires to be a full-time photographer. In 2004, together with another couple, the Trembles opened Pattrem Studios, a full-service photography studio located in Stone Mountain, Georgia. Marie is one of the principal photographers, but the growing venture doesn't generate enough income yet for her to work there flail time.

The value of a well-timed investment isn't lost on the Trembles. Wilbert jokingly tells his wife that if she had put $10 a week into Home Depot stock they wouldn't be married today because she'd be "sitting on a boat somewhere."

What can investors like the Trembles expect from the stock market for the rest of the year? Look at the Dow Jones industrial average, and it seems as though the market is oblivious to cautionary economic indicators. Closing at record levels more than 25 times since October, the market seemed to shrug at a potential housing bust, the looming prospects of inflation or recession, a huge deficit, and a plummeting dollar.

So it might be wise to take a step back, advises Randall Eley, president of The Edgar Lomax Co., an investment firm in Springfield, Virginia (No. 11 on the BE ASSET MANAGERS list with $1.6 billion in assets under management). He cautions that, though it may appear we're in a "Goldilocks" economy--one that seems not too hot, not too cold, but just right--the markets don't move inevitably upward. There are corrections along the way (for example, when an index drops by 10% to 15% but for no more than six months). Investors just might be due for one. "I don't believe a conservative investor should expect those gains to continue," says Eley, who is also the firm's chief investment officer.

Particularly worrisome is the weak dollar, which sank 11.5% against the euro this past year. To firm up the currency, Eley says that the Federal Reserve Board may have to hold off for a while on cutting interest rates. That will deal a blow to already-slowing corporate profits, because a cut in interest rates would allow companies to finance possible expansion projects and other ventures more cheaply. As a result, this could hinder stock prices and tip us into a bear market. "It was a much larger drop than the Federal Reserve was expecting," he says. "Now they'll have to stabilize it to keep foreign lenders from moving away from the U.S. dollar--and that could force long-term [interest] rates up." But as a value-oriented investor, Eley says there are still a few bargains out there. Telecom names such as Verizon (VZ), with its fat dividend yield of 4.2%, look attractive. And financial giants such as Citigroup (C) and JP Morgan Chase & Co. (JPM) have the "kind of price/earnings ratios we like," says Eley, with P/E ratios of 12.3 and 12.7, respectively. He notes that this is in line with banks of this stature, which as a group currently carry a P/E ratio of 14. Meanwhile, Eley is shying away from utilities, which have soared so much in the past year or two that they're no longer buys. Note that the Dow Jones Utilities Index climbed 36% from the start of 2005 through the end of last year.

Other market watchers, though, are more bullish about 200Ts prospects. Carla Harris, a managing director of global capital markets for Morgan Stanley, points out that there is a high likelihood that key economic indicators, such as interest rates, inflation, and oil prices, trade in a narrow range this year. "As long as those stay steady, we can expect another good year," she says.

Mix in the fact that private equity firms, hedge funds, and corporations are all flush with cash, and it could be another year of solid gains. So initial public offerings are hot, share buybacks are in vogue, and average investors might do well with a growth-oriented portfolio that capitalizes on the money glut. "The market was buying growth in 2006, and I don't see anything taking away from that," says Harris. "In a good macroeconomic environment, growth areas like technology and healthcare tend to do very well."

BONDS: ALWAYS A BRIDESMAID?

With the S&P 500 cranking out more than 13% gains in 2006, and plain old money market funds offering around 5% in interest, bonds didn't hold a whole lot of sex appeal as an asset class.

In addition there's the odd situation of the so-called inverted yield curve, which occurs when the interest rate on short-term U.S. government bonds is higher than the rate for long-term bonds. Typically investors would be paid a higher rate for longterm bonds because they are tying up their money for a longer time period. The inverted yield curve has historically indicated that a recession is coming. That certainly makes it challenging now for average investors to know where to place their bets.

That's why Bruce Goode, president of Goode Investment Management Inc. (No. 12 on the BE ASSET MANAGERS list with $428 million in assets under management), says investors should stick with intermediate bonds, which have a maturity of three to seven years, for the moment. "The curve is flat, but it's not going to stay flat forever," says Goode. "By the time it moves and gets back to normal, you don't want to be too long or too short." Goode also manages a stable value fund with $247 million in assets, which is regularly ranked as a top performing fund according to Hueler Analytics. Stable value funds are often part of employer 401(k) plans; they offer investors a conservative investment choice that aims to deliver consistent, predictable growth without exposure to market volatility.

Other tips: Don't bet the farm on a coming interest rate cut, since the next few Federal Reserve calls are going to be very data-driven, and nobody yet knows how that's going to play out. And don't count bonds out quite yet, because after a chilly period, they could see a surprising renaissance. "I don't see a lot of growth in domestic equity markets this year," says Beal. "There might be a slowdown, and so there could be a flight to quality [a move to more stable, high-quality investments] during this time. So that's why I'm bullish on bonds."

Beal likes what he sees on the domestic front, rather than international and emerging market debt. Like Goode, he advises individual investors to stay on the short to intermediate side of the bond market, as curves start getting back to normal.

As for the economy in general, Beal says that you can relax a little about a big bust, because presidential ambitions could have a very real effect on your portfolio--in a good way. "If I was really a cynic, I'd say that in the run-up to the 2008 elections, [the Bush administration] will want to keep the economy very strong."

RELATED ARTICLE: The big picture.

How your portfolio fits within the larger economy

Like the tip of an iceberg, your investments are a small part of a vast whole; their performance is intertwined with fundamental elements of the economy. Knowing which way the winds are likely to blow regarding these macroeconomic factors can help you make smart decisions. So how are the winds blowing? Experts say 2007 will start strong and may end a bit weaker, but overall it's shaping up to be a good year for investors.

Here's an overview of some key factors:

Interest Rates "The Federal Reserve Board has been pretty consistent in keeping its eye on inflation first and foremost," says Greg McBride. senior financial analyst for Bankrate.com. With the risk in check, the Fed is likely to leave rates at 5,25% for several months, he adds. Through last summer, the had raised short-term interest rates 17 times in two years to keep a lid on inflation.

A slowing economy in the second half of the year could further ease inflation fears, which might prompt the Fed to cut rates in order to stimulate spending, says Zottan Pozsar, an economist at Ploody's Economy.com. He expects that longterm rates, which the Fed does not directly control, will stay flat or fat/this year, which could help nudge home sales forward,

Falling rates are great for long-term bonds says Leroy Tanker, a certified financial planner with Freedom Financial Services in Atlanta. Rising long-term interest rates cut into the value of bond portfolios by making newly issued long-term bonds more attractive than existing longterm Ponds. Falling rates have the opposite effect, he says.

* Consumer Spending Housing and automobile sales are slumping, but strong consumer spending--fueled by end-of-year bonuses and cash from home equity loans--will continue to keep consumption strong in the first half of the year, according to Pozsar. He says that by the second half, spending growth Should slow to 2.4%, down from 3.2% last year. "That's healthy, but not as strong as it used to be," he says.

* Corporate Profits Several years of strong performance have proved a boon to investors. Pozsar says that while profit margins remain at record highs, he expects them to fall back just a bit this year, Corporate profits are closely linked to consumer spending, Tanker notes. "We have to have strong consumer spending to give us strong corporate profits and to produce a good environment for equities," he says. "Corporate profits are looking moderately strong this year."

* The Dollar The greenback, already weak compared with the euro, will depreciate against Asian currencies as China strengthens the yuan by letting it appreciate, according to Pozsar. That's good news for investors who own international stocks, says Tanker. "International equities are denominated in foreign currency, and if the dollar is weak, foreign currency is worth more." --Steve Garmhausen

4 HOT SECTORS

With the Dow at an all-time high and some sectors seemingly about to burst, it's an unhappy time for bargain hunters almost everything seems pricey, But don't fret because as CNBC's Mad Money host Jim Cramer sacs, there's always a bull market somewhere, Here are a few sectors to take a look at in 2007:

Telecom stocks Low valuations and high dividends make this sector a classic value play right now. Because they're reliably profitable telecom firms should Keep churning out those yields even in a declining market

Intermediate bonds If the bull market comes to an end this year, look for a flight to quality and for bonds to come back into fashion. But don't get stuck too short or too long; the middle ground of intermediate term bonds is your best bet.

Financial firms Commercial banks and stock brokerages are hovering at appealingly low prices. But you'll want to look at a bank's sources of revenue, in particular its exposure to sub prime loans which has already caused problems for HSBC Holdings PLC (HBC). Still, 2006 was the sector's breakout year--as evidenced by massive Wall Street bonuses--which means that it could be time to buy.

IPOs With hedge funds and private equity firms throwing their weight around, there's a whole lot of money trickling through the economy. That usual y bodes well for the IPO market and for a growth-oriented investing strategy.--C.T.