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U.S. STOCKS, BONDS ARE BARGAINS

That's not flag-waving patriotism. Right now, that's just smart investing.

Stick close to home this year.

Even after last year's market mayhem and this year's turbulent start, investment bargains are hard to come by.

Still, you have to stash your money somewhere, and it increasingly looks like today's best values are to be found not abroad, but in the U.S. stock and bond markets.

You want to build a globally diversified mix of stock and bond funds, preferably index funds, with each fund assigned a target portfolio percentage. Thereafter, you should occasionally check on each fund, to make sure it hasn't strayed too far from its target.

What if you check today? You will likely find you are below target on struggling investments like U.S. stocks, municipal bonds, high-yield "junk" bonds and real estate investment trusts. Meanwhile, you're probably overweighted on foreign stock markets, especially emerging-markets funds, which posted sizzling 37 percent average gains in 2007, according to investment researcher Morningstar.

Indeed, if you have a disciplined bone in your body, you ought to shun today's international-investing craze, lighten up on foreign funds - and start buying American.

There is an added reason to shift money back home, and that's valuations.

Emerging-markets stocks have notched a cumulative 383 percent total return over the past five years, vs. 83 percent for the Standard & Poor's 500-stock index. Result: Today, emerging markets are no bargain.

"They're as richly valued, or maybe more richly valued, than U.S. stocks, and that doesn't make any sense," argues investment adviser William Bernstein, author of The Four Pillars of Investing.

To make matters worse, the dollar seems cheap compared with other currencies, and it could rally. That would hurt the performance of foreign stock and bond funds that don't hedge their currency exposure. "When you see all the Germans and the French in New York City filling up their suitcases, that tells you something," Bernstein said.

Meanwhile, parts of the U.S. stock and bond markets look increasingly attractive. The S&P 500 is at less than 18 times trailing 12-month reported earnings, not far above its long-term average. Large-company share prices have performed so dismally this decade that the S&P 500-index remains 9 percent below its March 2000 bull-market peak.

"Large-cap price-earnings ratios, relative to small caps, are at low levels based on the range for the past 25 years," says Ken Gregory, a partner at Litman/Gregory Asset Management in Orinda, Calif.

"When large caps beat small caps, mega caps tend to do even better," Gregory said. That's why he likes iShares S&P 100, an exchange-traded index fund that owns 100 of the U.S. market's largest companies.

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