| If you have money that you want to optimize | | | | Real estate has improved in some markets. Real |
| your rate of return or have the most gain while | | | | estate is less liquid. It is difficult to liquidate only |
| maintaining some diversification, where should you | | | | 4% of a real estate investment. Currently there |
| invest it? These are funds that you do NOT | | | | is an abundance of housing, commercial space, |
| anticipate needing in the next five years or more. | | | | and raw land. Until these conditions change in the |
| They may be in your IRA, your retirement | | | | specific geographic area you are investing in real |
| account, brokerage, or other type of savings | | | | estate appreciation will be capped around the rate |
| account. | | | | of inflation. I am referring to investing in real |
| In general you might invest in commodities, real | | | | estate which is different than deciding whether to |
| estate, fixed income, or stocks. | | | | buy a home or rent a home. Buying or renting is |
| Stocks or equities still offer tremendous upside | | | | different than investing in real estate.0 |
| and will probably provide higher returns than | | | | The International Monetary Fund (IMF) forecasts |
| commodities, real estate, or fixed income over | | | | commodity prices to rise at 5.8% this year and |
| the next 5 years. | | | | 1.6% next year. While some traders will make |
| Fixed income is any investment where the terms | | | | good returns, they could probably do better |
| of what an investor receives is fixed by a legal | | | | trading futures on the equity markets. |
| contract. Examples of fixed income include | | | | The IMF projects World Output to grow by 3.9% |
| government bonds, bank certificates of deposit, | | | | in 2010 and 4.3% in 2011. The growth in World |
| corporate bonds, annuities, and guaranteed | | | | Output should drive an increase in earnings of the |
| insurance contracts. Mutual funds that invest in | | | | S&P Global 1200. The increase in earnings should |
| fixed income instruments are NOT fixed income. | | | | drive price appreciation of at least 10% per year |
| They are equity shares in a managed pool of | | | | for the next two years. Price appreciation may be |
| fixed income investments. There are NO | | | | greater than 10% because the current price of |
| guarantees of return of principal or interest | | | | the S&P Global 1200 is undervalued relative to the |
| payments in a bond fund. A bond fund is NOT a | | | | future net profits of its constituents. |
| fixed income investment. | | | | Therefore a rational probability of attaining better |
| Does anyone think interest rates will go lower? | | | | than 10% per year gain in the market value of |
| Can the Federal Reserve set a rate lower than | | | | the S&P Global 1200 without any leverage exists. |
| zero? Do you want to invest in a bull market that | | | | A greater than 10% return in equities is a better |
| has been going on since 1982 which is 28 years | | | | return than 2 year treasuries offered at.99% per |
| old? | | | | year, commodity prices rising at 5.8% this year |
| If interest rates go up, the market value of | | | | and 1.6% next year, or the real estate market in |
| bonds will go down. If you answered no to the | | | | the United States. The real estate market is still |
| previous 3 questions then you probably believe at | | | | confronted with too much supply and is likely to |
| best interest rates will stay at current levels. | | | | appreciate at less than 3% per year. |
| Actually in the last year the rates on the 30, 20, | | | | There is still a large amount of cash on the |
| 10, and 5 year bonds have all increased. It's more | | | | sidelines waiting for a retreat in stock prices. |
| likely that interest will continue to rise. The | | | | In 2009 bond funds were positive on cash flows |
| questions are for how long and how high they will | | | | into them. In stock funds, more money was |
| go up. | | | | withdrawn than contributed. Money markets are |
| As interest rates rise the market value of fixed | | | | paying.81% per year. These are NOT the |
| income investments will drop. While an investor | | | | conditions for an equity market top. These are |
| who holds their fixed income investment until | | | | the conditions of a bond market top!! |
| maturity will receive their principal and interest | | | | As the lagging mob reacts to the declining returns |
| under the terms of their purchase, they will suffer | | | | in their bond funds and the pain of missing the rise |
| opportunity costs. Do you want to own a 3 year | | | | in equity prices, funds will move from bonds to |
| Certificate of Deposit yielding 3% when you could | | | | equities. This will fuel a further rise in equity prices. |
| earn 4% on a two year Certificate of Deposit? | | | | While the global stock market has made significant |
| Fixed income is not the place to make money | | | | strides in the last 12 months up over 50% in the |
| over the next few years. It is a great place to | | | | last 12 months, it needs to go up another 40% |
| keep your funds for a short time because you | | | | just to approach it's fair value. |
| are going to spend the money within the next 5 | | | | For investors with funds they do NOT plan on |
| years or less. | | | | consuming over the next 5 years, I'm |
| Buy guarantees from qualified guarantors. I like | | | | recommending an allocation of 98% equity and |
| the U.S. Government. Do not place money you | | | | 2% cash. |
| expected returned to you in a specific time in a | | | | For which equity investments, feel free to |
| bond fund. Bond funds should be used only in rare | | | | contact me. |
| special circumstances. | | | | Have a wonderful Day! |