Don’t go overboard chasing today’s best investment. In 2009 stocks and gold were at the top of the hit parade. In 2010 they may not even be good investments. In your search for the best investment stand back and take a good look at the landscape. Soon it’s likely to change so pay attention, especially if you are a new investor.
When 2009 began your best investment might have taken the form of doing all you could to keep your job and mortgage afloat. In March the stock market ignited and skyrocketed 60% in a matter of months. And once again gold was being touted as the world’s best investment.
As a new year approaches investors need to reflect on the past when looking forward; and especially the new investor needs to ask questions. Why were stocks and gold such good investments? Will the trends continue, and what could happen that might turn things around? The year 2009 was unique.
Money was cheap and the dollar weakened significantly vs. other major currencies. Investors couldn’t earn significant interest on safe investments. Profits were enhanced for major U.S. corporations doing business abroad as earnings were translated from foreign currencies to dollars. The price of gold rose on the back of the weak dollar, since its price is quoted in dollars per ounce.
Both gold and the stock market were good investments, at least in part due to a falling dollar. Investors were relieved when it appeared that the worst of the financial crisis was over, so they took cheap dollars and bought riskier investments pushing the stock market and gold prices higher. After all, the safest investment in the world (the U.S. T-bill) was paying much less than 1%.
It is unusual when the stock market goes up over 50% in a matter of months; and unusual when gold soars at the same time. It is also unlikely, in my opinion that both trends continue throughout next year. Stocks could be derailed by rising interest rates, a weaker than anticipated economy, lower corporate profits and/or a relapse of financial crisis.
Gold is being advertised as the best investment in the world, again. The new investor might not realize it, but this has happened more than a couple of times since the early 1970’s. The upward trend in this precious metal has never had staying power. A stronger economy and dollar could take the floor out from under all that glitters.
One thing won’t change next year. Your best investment will be a balanced portfolio of good investments coupled with a sound investment strategy. Instead of chasing this year’s best investment categories, lighten up on them… rebalance your portfolio.