If I had remained entirely true to my principles, I would be a wealthier man today. Instead, I listened to all these financial advisers that told every worker in America to put their 401-K savings in aggressive growth funds full of risky stocks.
To be fair to myself, I held out for years, keeping my money in bonds, until just before the stock market crash. Now my 401-K is worth half what it once was, and I suspect that any recovery will be a long time in the making. I almost added a scary aside, if a recovery ever happens, but thought better of it. It seemed like bad luck to me. The financial news does not look good, though. American manufacturing is in the toilet, and China is coming on full steam, while our political leaders are just waking up to the fact that Iraq is not the 51st state of the Union. The Democrats, at least, understand that it makes more sense to invest money in those states that are part of the United States rather than the Middle East.
In the early aughts, there was an excellent investment overlooked by most during the stock market's heyday, the Inflation-protected Treasury bond, or I-bond. I loaded up on these babies because they give you a little interest over and above the inflation rate. Not a super return, but safer than any other investment, and guaranteed to beat inflation. We can quibble over whether the government's declared rate of inflation is the real rate or not. Personally, I find the declared rate rather conservative, not reflecting adequately the cost of groceries, gas, and other items. Things like the cost of computer hardware is what the government takes into account, and if a processor is twice as fast as last year's model, but costs the same price, the bean-counters reckon the actual price has dropped in half. And they're wrong, and that's complete nonsense.
I-bonds that I purchased in 2002 are earning 6.48% interest today. Compared to the stock market's performance, that does not seem too shabby. I just wish I had thought to place more of my short-term investments into I-bonds.
So, my astute reader asks, are I-bonds a good investment today?
Nope, sorry to say, but to make money investing, you have to be a bit of a contrarian and go against what's popular. When everybody gets into an asset, prices grow dear and the potential return collapses. Some recent I-bond issues have had an interest rate that merely matched, but did not exceed, the rate of inflation. That's not very attractive. I bought mine when the I-bonds were beating inflation by two percent or more.
Today, I would go against common sense and keep my long-term investments in stocks. The reason is that stock prices are beaten down, many scams exposed, and investor vigilance has risen. Also, I believe inflation is likely to present a threat to the value of bonds. I have felt for some time that the U.S. is due for a major surge in inflation. Finally, if you sell now, you are locking in a sizable loss. Unless you can use the tax write-off, why take a loss?
What the fat cats were getting away with under the Bush Administration is not quite as likely to occur under Obama. He's not going to stop every abuse, but he represents the potential for additional government oversight and regulation, which has been needed for ages. I'm willing to bet that Obama is right about the economy and that he will succeed. My intuition tells me that financials and technology might represent attractive investments today. This advice is based upon no research at all and no experience. Just plain horse sense or donkey sense if you prefer, as I am a Democrat. Heyaw!
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