August 22, 2011

Gold versus Stocks

A lot of noise around gold these days, it seems we are bombarded with ads reminding us to buy gold.

Here is the truth about gold.  Gold is a commodity and as such is susceptible only to perceived supply and demand.

If you thought stocks are volatile, watch commodities for a while!

The chart compares the total real returns over the period, 1925 to 2010. Gold has climbed a great deal in the last year, not on this chart so I imagine the yellow line to be well above the red but still not above the blue which is stocks.

Sure, we'd all like to have sold all our stocks in 2000 before the bubble burst and bought gold but timing the different asset classes is just too difficult and commodities are dangerous.  The average investor and yes, that means you, is better off staying the course with your mix of stocks, bonds, CD's and cash.

August 12, 2011

Rule of 72

The rule of 72 is very important to you as an investor.

It works like this; take your expected rate of return, divided into 72 and the result will be the amount in years for your money to double.  This is an approximation but its pretty close, certainly close enough considering all the other variables.

An example would be an expected return of 8% will mean your money will double in 9 years.

This is very important because I think that far too many investors expect their money to do too much and thus take on far too much risk which they regret later on when its obviously too late.

Remember that to double your money in say 4 years will require a 18% return which means you will have to take on massive risk.

Think logically like your friend Einstein there.  What kind of investor do you think he'd be?

August 4, 2011

Cash is ok

There are plenty of types of investments; stocks (either individual or through mutual funds or ETF's), bonds, real estate and commodities such as gold, silver and oil.  There are others too like art, coins, etc.

One investment or asset class gets very little attention and is rarely mentioned - CASH.

The reason cash isn't mentioned very often unless it is to malign it, is because your stockbroker does not get paid when you have cash on the books.  

Whether you pay commissions per transaction or are in a fee only account, cash pays your stockbroker, financial advisor or financial planner absolutely nothing which is coincidentally why you receive calls and emails to invest that money now.

Cash is ok, especially when you aren't comfortable buying into the market.  

Sure cash pays virtually nothing these days but its better than losing and there is something to be said for sleeping at night.  I remember telling clients that if they are losing sleep that they own too much stuff.