Sitting on the sidelines now could mean missing out on big future gains.

Future wealth can take root in bear markets. Investors with the courage to buy when others are paralyzed are usually rewarded down the road. We don't know if the bottom has passed or if new lows still lie ahead.

This much we do know: Good assets are going cheap at prices that are significantly lower than they were a year ago. That's an opportunity not to casually ignore. Moreover, following the nosedive that stock prices took last year, most portfolios need rebalancing, redeploying cash and bonds into equities.

Here are some options worth considering:

•    Smaller firms: They often outperform bigs as a recession nears an end. A list of solid companies would weight loss firm NutriSystem and Bankrate, a publisher of financial information. For those who prefer the lower risk of mutual funds, T. Rowe Price Small-Cap Value, Baron Small Cap and iShares Russell 2000 Index are good options.

•    Beaten-up blue chips: AT&T, Cisco Systems, Disney, 3M, JPMorgan Chase, DuPont and Microsoft. They'll take longer to rebound, but prices are alluringly low.

•    Energy firms: Oil demand will rise as the U.S. economy starts to recuperate later this year and the global economy follows in 2010. Take a look at Schlumberger, an oil field services and technology company, and Royal Dutch Shell, among others.

•    Heavy industry and materials firms: construction suppliers, producers of steel and power generating systems, engineering services and so on. In a recovery, they'll usually benefit first, so they're usually the leading edge in a rising market.

•    Consumer staples: Both makers & sellers have taken an undeserved beating. Once high-flying tech firms Google and eBay are now reasonably priced.

There are some other bright spots including biotech, telecom services and alternative energy firms. Solid mutual fund choices there areVanguard Primecap Core and Fidelity Contrafund. For an overseas stake -- Dodge & Cox International or Artio International Equity II.

As for investments other than stocks, consider well-chosen REITs. Their high yields can make the long wait for the housing market to recover a little less unpleasant. One good option is real estate mutual funds, such as T. Rowe Price Real Estate.

Forget about Treasuries. Hefty buying by investors seeking a safe haven has them overpriced and starting to reverse.Consider high-quality corporate bonds, such as Merck and Wal-Mart, instead, which are currently yielding 4% in maturities of five to 10 years. That would be a good value over the next three years -- or when inflation will likely be low. A fund, such as Vanguard Intermediate-Term Investment Grade, would make a good alternative. For the fixed income investor, municipal bonds with yields of about 4% have appeal. One such fund: Fidelity Intermediate Municipal Income.

[Editor's Note: As originally published, Charter Communications was in a list of solid companies in error. It should have been described as a speculative investment.]

January 12, 2009
By Jerome Idaszak