Investment Climate Blues

Dec 22, 2011 by

A friend who’s a bit less experienced than me with investing recently asked for suggestions on what he should do with the money in his retirement account. I don’t like to feel responsible for anyone else’s well-being in their doddering years—especially a friend’s—but I queasily agreed. Given what I know about his situation, I thought through the ‘usual suspects’ for retirement account investments, and came to a unified conclusion: With one shaky exception, I don’t like any of them.

Suggested reading

Stocks

Let’s see—the Eurozone is disintegrating; often forgotten is that China remains communist; Wall Street’s prone to flash crashes, meltdowns, bailouts, bubbles, and bombast; “experts” have been declaring over for nineteen years the 20-year descent of Japan’s stock market; Russia may be on the verge of another revolution; Iran guards the Strait of Hormuz, through which 33% of the world’s seaborne oil shipments pass; a 20-something North Korean guy now runs a substantial nuclear arsenal; and baby boomers are about to begin a massive unloading of stocks to finance their retirement. Aside from that sampling, prospects for stocks look pretty good!

 

Bonds

The rate on the 10-year Treasury bond is 1.97%. Bond prices are at historic highs. (See the yield graph. Remember—bond prices move opposite to bond yields.) If you want income or aim to follow the simple “buy low, sell high” philosophy, today’s bonds fail miserably on both counts.

What about junk bonds? See “Stocks,” above.

Gold

Sorry, but I need someone to explain gold to me. Why the fixation? Why is gold “worth” $1,600 per ounce? What is it about the element with atomic number 79 that makes it unique? When the world goes to heck in a handbasket and my paper money is worthless (per the Gold Bugs), am I going to be able to buy a quart of milk with a few shavings from my gold bars? Instead of $400 will Apple one day be priced at one-quarter ounce gold per share?  I’ve got to plead ignorance here; I just don’t get it, and invite comments on the subject.

Annuities

After witnessing the Wall Street meltdown in 2008, in a financial world seemingly overpopulated with Bernie Madoffs and MF Globals and AIGs, and with an evidently impotent SEC, there’s no way I’d give a big chunk of my retirement savings to any financial firm on the planet and trust that the company would be around and solvent and law-abiding for the rest of my life to send me a monthly check. No way.

Money Market Funds

With near-zero yields and the likelihood the buck will be broken next time, I’m out.

Real Estate

Though the U.S. residential real estate market lies in ruins—or maybe because it lies in ruins—it’s perhaps the one investment opportunity in which I could get interested. Risk still abounds, no question about that, but with 46% of November’s home sales comprising short sales or foreclosures and the 30-year mortgage rate near 3.9%, it seems a good time to pick up a solid, income-producing property at a discount. Of course not everyone wants to be a landlord.

I’m unsure whether I have too much of a gloom & doom outlook, or do I justifiably perceive extraordinary investment risks and uncertainties at this moment in time?

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