For most investors 2011 will be a year they may wish to forget. After a very promising start where stocks and commodities steadily gained in price, global risk markets were whipsawed over the summer months and into the fall as the deteriorating economic situation in Europe and political gridlock in the US caused fears of a global growth slowdown and the knock on effects of a European recession despite a modestly improving US economy. Tracking the unfolding financial crisis, euro-area sovereign interest rates which member nations are required to pay on their debt rose dramatically over the second half of the year as investors fled the region.Markets reached a tipping point late in the year as Italy's borrowing rate exploded from two to seven percent and it was decided that Greece would ultimately default on its government obligations forcing creditors to take a substantial haircut.The ripple effect of rising euro yields and growing pessimism about the region's economy toppled prices on even the most profitable financial company stocks and bonds - on both sides the Atlantic. For example in France, a AAA-rated ‘core' euro country, experienced steadily increasing interest rates as capital flows needed to operate its largest banks began to dry up and the cost to insure a five-year French government bond against default doubled in price over the course of the year.Clearly, markets have grown increasingly wary of the euro zone's solvency and creditworthiness in the face of flagging leadership and a seeming inability to arrive at a comprehensive solution. Growing economic concerns pushed financial assets prices lower in the second half of 2011and into the red for the year as a whole. Only longer-dated US Treasury Bonds and a handful of the largest ‘Dow stocks' managed a profit for the year.Looking ahead, selectivity and using a disciplined investment approach will be critical to growing your wealth and generating income during what is likely to be another tricky period for market investing.Fixed IncomeFor the 2011 year, longer-dated US Treasury bonds were some of the biggest winners. In a ‘normal' capital market environment, bonds tend to be a rather homogenous lot rising together in price when interest rates fall and declining in price when rates rise.However, 2011 can best be described as a ‘Tale of Two Markets' where Treasuries and high grade industrial (non-bank) bonds soared while many financial credits experienced substantial price declines despite falling US government interest rates which usually make most bonds more valuable.The 2011 year will also go down as the year when the major credit rating agencies paid penitence for their sloppy due diligence going into the last recession. Making up for their prior lack of proactive ratings adjustments and possibly to generate extra publicity, the agencies launched a full scale attack on sovereign debt and financial sector bonds downgrading scores of issues in the US and Europe. The crowning glory of the normally boring credit rating world was S&P notching down America's sacred AAA bond credit rating to AA+ attributed to the country's inability to arrive at a timely and sufficient plan for reducing its massive budget shortfall.For the year ahead, we see a continuation of ultra-low short-term interest rates in the developed country markets with plenty of volatility in longer-dated securities. Investors will do well to stay with high-quality, shorter-dated financial credits which are now offering meaningfully higher yields since last summer.Fixed income investors may also benefit from an allocation to longer-dated government and high-quality industrial credits. Recently published government statistics suggesting moderating inflation combined with falling commodity prices should allow central banks ample leeway to keep rates low. In this environment, longer-dated bonds should still be attractive providing higher income returns by ‘riding out the yield curve' in addition to offering the possibility of further pricing gains if the global economic recovery stalls.EquitiesEquity markets began the year auspiciously as economic data began to tell a tale of further stabilisation and improvement; the end of the ‘Great Recession' seemed at hand. Quantitative Easing came to an end in early summer and it appeared that all was going fairly well in the world despite several unpredictable natural disasters including the tragic earthquakes and tsunami in Japan. By mid-year, America's index of leading economic indicators had risen by almost 20 percent since the depths of the recession in early 2009 through the first half of 2011.And then came the well-publicised debate over America's debt ceiling which resulted in little more than political bickering, an uneasy compromise and a major rating agency credit downgrade. The US budget battle was soon followed by increasing evidence of a much messier European landscape revealing an equally inept political mechanism.For the second half of the year, equity markets tumbled by over 10 percent as measured by the MSCI World Stock market index. Surprisingly, the normally highly correlated markets of America, Asia and Europe parted ways. The US-based S&P 500 outperformed the Stoxx 600 Europe Index by approximately 14 percent and outpaced the Asia (ex-Japan) index by about 20 percent for the year.For the 2012 year ahead, I continue to recommend the strategies which served our clients well over the past 12 months. First, expect high-dividend paying stocks to perform better than the averages once again.The coming year is likely to see further heightened volatility and low interest rates as we wobble through an election year. Political powers will be pulling out all the stops to stay in office while the global economy struggles further and many of Europe's weakest countries enter recession. High-quality stocks, with strong underlying cash flow and adequate debt service are likely to hold up better once again as investors crave both yield and safety. Also, consider boosting exposure to emerging markets which represent stronger underlying economies in many cases but expect high volatility in these markets.CommoditiesFor the past year commodities were overall a poor investment, declining in price and offering no income. The Dow Jones UBS Commodity Index fell 13 percent over the year.On the plus side, oil and gold stood out as winners for in 2011 rising approximately eight percent each. For the year ahead, gold may still be a good bet offering a reasonable hedge against further political breakdown in Europe. Gold has declined 19 percent from its September high as of this writing. Also, consider the less economically influenced food commodities and stocks representing the companies which process agricultural products as developing market diets improve.Strategically, the beginning of a New Year is always a good time to take a step back and look at your portfolio's overall positioning. Asset allocation may be one of the most important factors in determining your future accumulation of wealth.My advice for the year ahead includes the 3 D's: Diversify your holdings, Dollar-cost average by buying strong positions on weakness taking advantage of market volatility and finally, stay with your investment Discipline.Please plan on attending our LOM market wrap-up on January 18. Best wishes to you and yours for a healthy and prosperous New Year.Bryan Dooley, CFA is a portfolio manager at LOM Asset Management in Bermuda specialising in the areas of asset allocation, portfolio management and quantitative process. He possesses an MBA from the College of William and Mary and has held key positions with progressive financial institutions worldwide throughout a career spanning more than 20 years. Please contact him at 441-505-5675 for further information. To register for the LOM market update seminar please contact Michael Greaves at 294-7017.