If you had $100,000, where would you invest it?

by JDH on October 22, 2011

Last week I asked the question: “Is an Inflection Point Coming?” I referenced the “Occupy” protests, occurring on Wall Street, and in dozens of other countries. What happened with the Occupiers this week?

Nothing much, it would appear.

I also referenced the work of George Ure at Urban Survival, and Clif High’s predictive linguistics work at HalfPastHuman, who were expecting the October 15 to 17 period to be a period of “emotional dumping” after the build up in tension that has occurred over the last few weeks. Clif specifically predicted that the tension would “hit the wall” on the morning of October 15, and would continue to grow over the weekend, so that when the U.S. markets opened on Monday October 17 they would “puke themselves”.

Oops. So much for that prediction. Nothing much happened on Monday, and in fact the U.S. markets closed the week higher than where they were a week ago. That’s not exactly “puking” themselves. The Dow was up 1.41% this week, which gives the Dow a not-so-impressive gain of 2% for the year.

The only truly historical news event this week was the capture and death of that guy Gaddafi, or Quaddafi, or whatever his name was. He was supported for decades, it would appear, by the U.S. and other foreign governments to maintain access to his oil reserves, until he became a liability, at which point NATO blew him out of the water (or the desert, in his case).

So what does this mean?

I have no idea.

If I had to guess, I assume it will be a repeat of what happened in Egypt, where the U.S. got tired of Mubarak, so they launched a “popular uprising”, which got rid of Mubarak, and left in it’s place military control. It would appear that nothing has changed in Egypt; it’s just a different group of despots running the show.

I assume the situation in Libya will be even worse. At least in Egypt there is some history of “democracy”, or local leadership. Libya for the last 42 years has had no such thing, so even if the people truly wanted democracy, they are likely ill equipped to make it happen. If you have never arranged a true election, or a truly representative government, how can you just snap your fingers and make it happen?

You can’t, so we are probably faced with more of the same.

So, for Mr. Gaddafi, this week was definitely an inflection point.

The Markets

Last week it was not just human events that were at a possible inflection point; the markets were also, apparently, nearing the end of a period of indecision. The Dow appears to have broken out of it’s three month trading range:

Will this be a decisive break-out, leading to a challenge of the almost 12,800 level we saw in the summer? Perhaps, but given that the RSI is now up to almost 70, my assumption is that the rally will run out of steam sooner rather than later.

The Big Question

So now we get to the “Big Question”: where should you park your money?

Let’s assume you have no debt, and you have managed to save $10,000, or $100,000, or $10 million, or whatever. Where do you put that money?

The S&P 500 started this millennium at 1,469.25 Here we are, almost a dozen years later, at 1,238. The stock market, therefore, over the last dozen years has managed a return of negative 16%. In fact, we are now trading at about the same level we were at in December, 1998. That’s 13 years of no gains.

In fact, it’s worse than that, since if you use the Fed’s inflation calculator one dollar of value in 1998 is worth 72 cents today, a loss of almost 30%. In other words, your wealth has eroded by 30% over the last 13 years.

What about real estate?

According to the S&P/Case-Shiller Home Price Indices, in December 1998 the composite 10 city index had a value of 92.14. By July of this year (the most recent figures available for free on their site) the index is 154.29, for a gain of 67%. That’s much more impressive than stock market returns. Of course using the same inflation adjustment noted above, 92.14 in 1998 is the equivalent of 127.41 today, so a 154.29 level is only an inflation adjusted gain of 21%, which isn’t great for 13 years of “work”.

Given the back log of foreclosures, it’s likely that house prices will remain stagnant, or weaken, over the coming months and perhaps years, so this positive real estate rate of return may not continue.

What about gold stocks?

In 1998 the HUI (a basket of senior gold stocks) was trading at around 100. Today it’s around the 515 level, which on an inflation adjusted basis equates to a gain of around 272%. That’s obviously better than the stock market, or real estate.

The best investment over that time period?

Gold itself.

Back in 1998 gold was trading at around $300 per ounce, or $414.82 in today’s inflation adjusted dollars. So, with gold around $1,643, that’s an inflation adjusted gain of just under 300%.

Over the last 13 years the correct answer, then, was to invest all of your money in gold.

But, as those mutual fund commercials say, “past performance is no guarantee of future performance.” So what does the future hold?

I don’t know, but I’d like to hear your thoughts. If you had $100,000 that you wanted to invest for the long term (say five to ten years, or more), where would you put it?

  • the stock market, because over time stocks rise;
  • real estate, because over time real estate increases;
  • precious metals stocks;
  • other stock market segments? Energy?;
  • cash;
  • physical gold and silver;
  • hard assets (like a shovel)?

Each of those investment alternatives has it’s disadvantages. With inflation, cash erodes. The markets and real estate haven’t done much better. The stock market is a rigged game. Physical gold and silver has no counter-party risk, but did you really want gold bars in your house? I don’t.

So what’s the answer? Feel free to post your comments here, or on the Buy High Sell Higher Forum, or take the poll on the right hand side of this page, and let me know the answer. Hopefully by next week I won’t be so confused.

Thanks, and have a good week.

{ 1 comment… read it below or add one }

emidris November 3, 2011 at 6:36 pm

Knowing where to invest $100K in these turbulent and uncertain economic times is like trying to figure the best safe for some personal ounces of gold. Yet, the difference is that while gold has naturally appreciated over 100 fold in the last 12 months, cash does not do the same unless it is invested and traded in the capital market. Nonetheless, I’m already saving up my $100K seed capital to begin the journey to being a millionaire before my retirement in about a decade from now.

I intend to split up the cash in half and trade 50% with dukascopy.com using a great forex strategy I got from a mentor. The 2nd half could be lodged with fund managers like thetradexperts.com or fxcm.co.uk for a premium percentage monthly return. With strategies like this, and some plans b & c as back-up, I should be fine before or when retirement beckons πŸ™‚