is there a place to put money that isn't a bubble?
hypothetically, lets say we are on the verge of some financial crisis, where else can a person put money besides stocks and real estate? off the cuff we have about 63% in home equity at current prices, 37% in stocks and bonds at current prices.
i have no ideas. anyone want to comment?
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Depending on what kind of financial crisis. Gold is traditionally a "safe heaven" for crisis times. Besides stocks and real estates, there is always cash.
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I am sure there are other sites but Fidelity Investments has a range of alternatives from dividend paying stocks to cds.
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Frank
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The commodity ETFs are a good alternative, but most follow the whims of the market. Look at DBA, DBC, GLD, SLV, UNG, USO.
-- Ron
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ideally the money would be invested for 15-25 years. that makes a lot of assumptions. their is no current need for it.
the thing that worries me... i feel this country has been going down the wrong path for some time. is this the culminating event in the country's inevitable decline? realistically we can't remain a global superpower forever. will this decline be gentle with a good standard of living or a harsh event for 10-20 years. i don't know. worse i have no plan B. i think most everyones plan A is based on good growth in american stocks, bonds, housing...historically this has been a great bet.
i am the type of investor that believes in making sound (used to be called conservative) choices and holds them for long periods of time. my idea is not to panic and dump my current investments but have a backup plan.
i've heard that real estate is the typical place for most people to invest when there is lost confidence in the stock market. but my fear is the devaluation of the dollar. so would my house, valued in dollars, be safe?
foreign markets would seem safer...unless they own lots of american debt.
gold seems like a good idea. has anyone watched the you tube video "money as debt" ? however, when you start adjusting the price of gold you'll see (or at least it looks to me) it ain't that cheap. apparently some other people are worried. this would make me slow to jump into gold.
good book recs are welcome.
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imho these bubbles weren't hard to see. i was listening to npr and hearing reports of the housing bubble years before the sub prime "crisis". not to mention if you looked at the way prices were increasing it was pretty obvious this could not be sustained.
same thing goes for the dot.com. i was here in san francisco in 2000. just looking around you could tell this thing wasn't sustainable. at the same time business people were saying it can't go one like this.
when the bubble bursts is another matter. that is hard to figure.
the thing that worries me about the current crisis is we are creating more money (as debt) and at some point maybe someone will realize we aren't good for it. we have a 3 trillion war, a 700 billion bailout i think will pass, a GDP of 13.8T, and debt of 9T? i'm no expert but this does not look good to me. if you distribute the current debt among the taxpayers its about 80k. yikes? how do we do it?
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If in stocks or bonds, where the price is in line with profits or cash flow. Sometimes prices get way ahead of these.
Most of the bubbles I'm aware of have been deflating. One people dont talk about much is medicine. Its inflating rapidly and consuming a large fraction of the economy. Thats a danger sign to me.
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Historically over periods of 15-25 years, yes, stocks have been a good bet.
Regarding the U.S. being a fading power, I think one needs to remember that it is an easy matter to invest globally these days, either via U.S. based companies with a strong international presence or funds of same or funds of foreign companies.
I think perusing _Stocks for the Long Run_ by Jeremy Siegel can help give a person confidence through periods like this. As you seem to be aware, it is important to stay invested--and keep reinvesting dividends--during periods like this.
Your premise seems to be that stocks remain in a bubble. In my opinion, they are no longer a bubble. Lately, as part of a history lesson and hopefully not as an exercise in numerology, I have been looking at the Japanese stock index the Nikkei 225. It reached a peak of around 40,000 in late
1989 and has mostly decreased for almost 19 years. Today is at about 10,900. I think one must remember that, at its peak, the average P/E for the Nikkei 225 constituents was around 70, and the average dividend yield was around 0.5%. Today I estimate the Nikkei's P/E is around 15 and the yield is around 1.9%, numbers far more sane and in fact similar to today's S&P 500. The S&P 500 high P/E occurred about 2001, at 54.
The crash of our S&P 500 and that of the Nikkei do not seem similar. Granted the S&P 500 may continue as a flat market for many years, but because the S&P appears more appropriately priced, I do not foresee a decline of some 75% happening and holding. Panic may drive it down further, but if so, I would not say the panic is rationally based, and I do not expect the S&P 500 to wander for years well below its current value.
Reinvest dividends. Watch the compounding effect on your portfolio as the economy recovers. Note Siegel's observations on the same: Dividends will increase; reinvesting dividends buys stocks at bargain prices; when stock prices rise to normal P/Es, your portfolio will be in fat city. Be braced for a bumpy ride but remember you are betting on the economy as a whole for the long run, and all should be fine.
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The current debt will be reduced by inflation which won't be good for bond holders.
-- Ron
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Bubbles are identified by declining prices, but that doesn't mean the decline in price is warranted. What is the opposite of a bubble?
Drugs have a limited patent life and when that expires the price of a patented medicine declines.
-- Ron
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the way i see it: inflation is a result of the dollar being devalued. the dollar being devalued is a result of "creating" too much money via lending. you know, when a bank makes a loan it also opens a new line of credit for someone else... essentially creating money based on someones promise to repay. so the idea that inflation wiping out debt is kinda like using debt to wipe out debt. this may look good on paper but isn't sustainable. i think there is some neocon explanation for how this works out...anyone? something like we can permanently change the productivity rate.
again, i'm no expert, but what i'm being told just doesn't add up. and now i'm beginning to wonder if the subprime thing really is the root trigger event for all that is happening. has anyone looked at the number of foreclosures and done some simple math? how much bad debt is it and how does it compare to these huge banks?
this line of thinking has me investgating non-traditional investing. then again, maybe i'm crazy. we'll see.
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10T! yikes. and i've been hearing there is some miltiary spending that's going on right now that basically not being covered in mass media.
yeah, from my understanding medical care expense is outpacing income...as is education...housing (at least it was). to me this all points to fewer people who can afford to be educated, buy homes, or get health care. if you believe those same people are the "engine" of this economy we are in serious trouble.
that's why i'm investing in soup.
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Your original question was where to invest given the economic crisis. I am suggesting that long term bonds aren't safe because of the danger of inflation.
Productivity can only be improved through investment in new technologies.
The bad debt is exaggerated. Only those that are out of work or bought at highly inflated prices are having problems.
You have the option of starting your own business or becoming a landlord.
-- Ron
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