For entertainment and instruction, over the weekend we took a scan of the news pages for expert tips on how to invest for 2015. There were a variety of ideas. These included some simple and practical suggestions…like paying down adjustable rate loans before interest rates go up. Saving 10 to 15 percent of gross income for retirement didn’t sound like a bad idea either.
Other ideas were a bit mixed. They sounded good, initially. But they seemed to come up short upon further review.
For example, National Economic Forecaster Robert Genetiski says “individuals should avoid making investment decisions based on forecasts of either major short-term gains or gloom and doom.” The first part of this advice is reasonable. Chasing a hot stock tip is generally a bad way to invest.
But the second part of Genetiski’s advice is lacking. Here at the Economic Prism we believe one should always consider doom and gloom when making investment decisions. Just because something is unlikely doesn’t mean it isn’t important…especially if the risks are great.
Sure, most of the time considering doom and gloom will end up being unwarranted. But occasionally it’ll end up saving you a fortune. You may also profit from it too.
Bull Markets Don’t Last Forever
The stock market’s been in a big bad bull run since March 9, 2009. For nearly six years it has gone straight up. In fact, the S&P 500’s increased over 200 percent.
This is quite a run, indeed. Of course, it took the most activist monetary policy in the post-World War II era to pull it off. Still, it is a remarkable feat.
Do you think it will continue for another six years? Will the market keeping mooing and producing like a milk cow? Or will it roll over and crash?
The answers to these questions are for the gods to decide. But we do know that bull markets don’t last forever. We also know the Fed will not be able to levitate stock prices indefinitely. For there are any number of things that could trigger a reversal…
Maybe it’ll be the realization that the economy’s not as strong as the Bureau of Economic Analysis recently reported. Perhaps oil prices drop to $40 a barrel, prompting a financial panic. Deflation could also take root in the U.S. economy as the dollar strengthens on international currency markets. Or the stock market could fall simply because it has been going up for so long and is overdue for a concerted price correction.
The Number One Investment for 2015
The point is, stocks could go up 10 or 15 percent this year. They may even go up 30 percent. But they could also fall in earnest. A 40 percent decline would be in line with the 2000 and 2008 bear markets.
With this in mind, let’s review what losing money is like. In short, it’s akin with a root canal. We’d rather not suffer such pain. We’d rather miss the final 10 percent of the bull market because we sold out too early than lose 40 percent because we held on too long.
Think about it. It’s simple mathematics. If you lose 40 percent, you must then make 67 percent just to get back to even.
When it comes down to it, this year could be one for the history books. The bull market could finally blow up in the Fed’s face along with price deflation. What’s more, before it is over the Fed could be printing money to buy stocks and the federal government could be crediting your bank account with a “tax rebate.”
When it is all said and done the number one investment for 2015 could be cash in the form of U.S. dollars. No, this isn’t interesting. Nor is it exotic. But it is the extension of a simple trend.
Dollars are becoming more and more valuable every day. Moreover, as the stock market tanks, and blood’s flowing in the streets, you’ll be able to use dollars to buy stock shares at bargain basement prices.
Plus, in addition to adding dollars to your savings account, you may also want to stash a few in your mattress just in case ATMs and credit cards stop working. No doubt, this sort of doom and gloom is highly unlikely. But ignoring it could be of great peril.
for Economic Prism