I have constructed a fictitious dialogue between whom I will call an INVESTMENT ADVISOR (IA) and the DEVIL’S ADVOCATE (DA). The first will give you the reasons why an investment is attractive, the second will give you reasons why that may be risky or even foolish today.
Short-Term US Treasuries, Money Market, CDs
IA: These are virtually risk-free and returning well over the current inflation rate. You can earn over 5 percent just by parking your money safely in any of these investments.DA: The Federal Reserve appears poised to reduce interest rates in September, a result of inflation getting close to target and the apparent cooling in the employment picture. Federal Reserve Chair Jerome Powell has said: “We need to get ahead of any possible economic slowdown.” That could mean your interest rates with these short-term investments will be falling.
Long-Term US Treasuries and High-Rated Long-Term Bonds
IA: For the past five years, the market value of long-term bonds has fallen precipitously, as rising interest rates to fend off inflation cratered their prices. Now, however, if interest rates finally begin to fall again as the Fed stimulates a cooling economy, you can earn the coupon interest while also enjoying a capital gain as the market price increases.DA: If the Federal Reserve cuts interest rates too early and we get a resurgence of inflation, the central bank will have to reverse that policy and long-term bond prices will fall again as the interest rates begin to head up.
S&P 500 Index
IA: Passive index funds have been described in more detail here:“The Importance of Balancing and Rebalancing Your Investment Portfolio” (https://www.theepochtimes.com/bright/the-importance-of-balancing-and-rebalancing-your-investment-portfolio-5678620)
If you invest in the market index, you may get winners and losers, but at least you will get total market returns—and safely!
DA: The concentration of the big tech stocks (below) is today so high, then if/when they finally deflate, the S&P 500 total market will fall significantly.
Tech Stocks
IA: The Magnificent Seven—a group of big tech stocks—have roared and soared this year. The momentum is so strong and the gains so high, that it appears we can expect a continuation of these increasing stock prices, especially driven by the new generative AI (artificial intelligence) boom.
DA: These stocks trade at such high valuations that the future growth reflected in the stock prices is based upon hyperbole. Although Nvidia, for example, is selling boatloads of its AI semiconductors and booking tremendous revenue and profit growth, the generative AI-based products and services that Amazon, Microsoft, and Apple hope to bring to market may not be quite so lucrative, as AI is beginning to show limitations and problems already.
Meme Stocks
IA: In 2021 and again this year, we have watched GameStop, Koss, AMC, and others spike up very high. Though they return to earth, if you can catch the momentum early on when their popularity is reignited, the returns you can make are awesome!DA: These are companies that lack good business models, and if they run out of cash they may become bankrupt. Why, then, speculate on something that doesn’t have a long-term future?
International Stocks
IA: The U.S. stock market does indeed appear to be overvalued, which is why India and Japan, for example, are seeing increased investing interest with more relatively attractive stock prices.DA: Much of the world is in recession, while the United States appears to be the only nation economically strong today. Yet, there are signs that it is beginning to cool. Foreign stocks carry other risks. China has a government known for cracking down on high-flying tech stocks (e.g., Alibaba). Other nations may have currency issues. Foreign investment risk carries far more risks than American company investing, unless you are an investment specialist in a particular nation or area such as Europe or Asia Pac.
Real Estate
IA: If you extend the timeline long enough, all real estate values move only up. There is only so much real estate, and owning it is typically a “can’t lose” investment.DA: Commercial real estate is in an almost depression-level economic state, as remote work has resulted in high vacancies. Retail businesses are going bankrupt as brick-and-mortar costs more than products you can purchase virtually online at Amazon.
Residential real estate is paralyzed. Though the supply is constrained, both the home prices and the mortgage interest rates have gone way up. In addition, property taxes, maintenance, and utility bills are much higher today. As the baby-boom generation goes away, a lot of their homes will be coming onto the market. So better to wait a while.
Gold, Silver, and Precious Metals
IA: As inflation creates a loss of confidence in the currencies, nations, central banks, and individual investors are buying more gold. In the past few years, the spot gold price has risen from $1,700 to $2,400!DA: Precious metals are speculative. Though they have industrial purposes and useful in making jewelry, the speculative nature of these means they pay no dividends nor interest. Gains are entirely based upon popularity, enthusiasm, and increasing investor participation.
Summary
By now, you have concluded there is no perfect pick. What you invest in will be determined by your age, risk aversion level, risk capital amount available, and, most importantly, where you personally believe some of these investments can be expected to go. Perhaps search, vet, and qualify a good investment advisor to help guide you through this maze of investment choices and decisions you will be making in the years ahead.And good luck!
The Epoch Times copyright © 2024. The views and opinions expressed are those of the authors. They are meant for general informational purposes only and should not be construed or interpreted as a recommendation or solicitation. The Epoch Times does not provide investment, tax, legal, financial planning, estate planning, or any other personal finance advice. The Epoch Times holds no liability for the accuracy or timeliness of the information provided.
