Each week I hear from a variety of people that stocks (equities) are not the right place to invest in right now. There is too much going on, unrest in the world and within our own country. Uncertainty is probably a better way of describing what the people I talk with are concerned about.
The question becomes where should you invest your money? Should it be in cash? Inflation will eat you alive. Should it be gold? There is NO proof that gold has ever been a good ‘investment’. Should it be in real estate? Here is an interesting fact, real estate is highly correlated to small value stocks. That means that when small value stocks go up real estate has a tendency to go up by the same relative amount. And when small value stocks go down real estate has a tendency to go down by the same relative amount.
Many investors believe that real estate is the safer investment. In my opinion this belief is unwarranted. The real difference between the two is that the value of your investment in small cap value stocks can be seen on a daily basis. In other words the volatility, ups and downs, can be viewed on a daily and even minute by minute basis. This knowledge combined with the Wall Street bullies media blitz initiates fear and often panic selling.
In the case of real estate the investor can only determine the value at the time of purchase and then at the time of sale. In most cases this is over a long period of time. In this case there is no need to remain disciplined because there is no volatility to be seen. However, that volatility is real.
So, I believe the lesson investors mistakenly learn is ‘if you can’t see it, it can’t hurt you’.
Past academic studies have proven that market timing does not work. There is no one in this country or any other that can consistently predict when to get into stocks and when to get out of stocks or any asset class. The desire is to earn stock market returns with Treasury bill risk and what happens is Treasury bill returns with stock market risk.
Unless of course you are not an investor but rather a gambler/speculator. You can tell you are gambling and speculating if you are:
- Stock picking.
- Market Timing.
- Track record investing.
The real message today is that regardless of where you invest your money, there is risk. Some of the risks can be seen and some are hidden. Keep in mind some of the visible risks like equities (stocks) are short term and most often recover quickly. Of course, past performance is no guarantee of future results. While some of the hidden risks like inflation are permanent in nature. That is, there has been no recovery from inflation or loss of purchasing power.
Regardless of how and where you invest your money there is a tradeoff of risks. In my opinion equities are one of the greatest wealth creation tools on the planet. That is, if you are able to build a prudent portfolio and remain disciplined through the inevitable downturns.
In most if not all cases this will require the guidance of an investor coach/fiduciary adviser.