I think the current investing climate worldwide continues to be very uncertain. Historically I believe in the long term success of investing in successful businesses and real estate in economically vibrant areas. I think you can do fairly well investing in various sold long term businesses or mutual funds looking at things like dividend aristocrates or even the S&P 500. And investing in real estate in most areas, over the long term, is usually fine.
When markets hit extremes it is better to get out, but it is very hard to know in advance when that is. So just staying pretty much fully invested (which to me includes a safety margin of cash and very safe investments as part of a portfolio).
I really don’t know of a time more disconcerting than the last 5 years (other than during the great depression, World War II and right after World War II). Looking back it is easy to take the long term view and say post World War II was a great time for long term investors. I doubt it was so easy then (especially outside the USA).
Even at times like the oil crisis (1973-74…, stagflation…, 1986 stock market crash) I can see being confident just investing in good businesses and good real estate would work out in the long term. I am much less certain now.
I really don’t see a decent option to investing in good companies and real estate (I never really like bonds, though I understand they can have a role in a portfolio, and certainly don’t know). Normally I am perfectly comfortable with the long term soundness of such a plan and realizing there would be plenty of volatility along the way. The last few years I am much less comfortable and much more nervous (but I don’t see many decent options that don’t make me nervous).
One of the many huge worries today is the extreme financial instruments; complex securities; complex and highly leveraged financial institution (that are also too big to fail); high leverage by companies (though many many companies are one of the more sound parts of the economy – Apple, Google, Toyota, Intel…), high debt for governments, high debt for consumers, inability for regulators to understand the risks they allow too big to fail institutions to take, the disregard for risking economic calamity by those in too big to fail institutions, climate change (huge insurance risks and many other problems), decades of health care crisis in the USA…
A recent Bloomberg article examines differing analyst opinions on the Chinese banking system. It is just one of many things I find worrying. I am not certain the current state of Chinese banking is extremely dangerous to global economic investments but I am worried it may well be.
Chu’s view puts her in a minority among those charting the future of the world’s biggest nation. She questions how long China can maintain the model of growth driven by bank lending that has allowed its economy to sidestep the global financial crisis.
Chu has been one of the most vocal analysts to warn about regulatory loopholes and weaknesses in China’s banking system, saying they make official lending data unreliable. Fitch in 2011 started calculating its own measure of total credit in the economy.
“Given that China’s credit is mostly funded by its internally generated deposits, I don’t think a real financial crisis, which is normally manifested in a liquidity shortage, will happen anytime soon,” S&P’s Liao said by phone. Local-currency savings stood at 92 trillion yuan at the end of 2012, according to the National Bureau of Statistics.
There’s no basis for concluding that China’s debt is unsustainable, said Xu Gao, chief China economist at Beijing-based Everbright Securities, a unit of state-owned China Everbright Group. A public debt level of about 50 percent of GDP, including borrowing at the central and local levels and by policy banks, leaves room for the government to borrow more, he wrote in an April 16 note.
For the last several years it has seemed to me one of the better long term investments was USA real estate. Sure I wasn’t confident how well it would due in the short term but in the long term it seemed very good. Lots of people have seemed to reach the same conclusion. I still think it is true but it is becoming less safe (as prices rise) and will be less attractive if interest rates rise too much. There are problems with how to invest in it best (REIT can be good but have some issues – expense rates… and owning personally can be annoying).
About the only thing I am fairly confident in for investing these days is to be much more focused on quality. I think it will pay off to invest in assest that are able to cope with extreme chaos in the markets and economies. Other than that I have never had less confidence in knowing what investment moves are wise than I have had the last several years. I do still believe it is wise to invest globally and take part in what I believe will be very strong growth in at least some “emerging markets” over the next 30 years – but I also think some will get completely clobbered.