The most dangerous myth out there right now is that Treasuries are the key to safe wealth building.
Forget about Fed Chairman Ben Benanke's latest palliative.
This misconception will turn your nest egg into a pile of sticks faster than you can say quantitative easing.
And this is a huge problem because the baby boomers are starting to retire in droves.
I call this the Great Retirement Funding Crisis. And I am determined not to be a part of it. And I have a plan.
Over the next 15 years, over 70 million Americans - over one-third of the adult population - will reach retirement age, but most of these folks have nowhere near the amount of funds it takes to retire comfortably.
What's even more troublesome is the fact that nearly half of those soon-to-retire have not even thought about how much it will take to finance a comfortable retirement.
And when I talk about retirement, I'm talking about financial independence.
Right now, safe investing is turned on its head and you need adapt or put at risk all you've have working for you.
Beyond Wealth Preservation
Over the years I have derived two simple but important axioms that guide my investing:
1. Even if you're rich, wealth, if not replenished, will run out. If you're not rich, growing your funds is even more important.
2. If you can get rich and know how to make wealth grow, then you can truly be financially independent.
My work at hedge funds and inside Wall Street powerhouse Goldman Sachs reinforced my view of wealth building versus wealth preservation.
And as the saying goes, I learned not to "fight the tape;" I learned to make money with the market regardless of what it threw at me.
For example, I made a very nice return from technology stock investing in the 1990s. And I continued to make money between 2000-02 even though the NASDAQ declined 70 percent. I was able to do this because I listened to the markets and I changed my strategy when the market changed.
It's Never Too Late
The key to investing and business success is the ability to identify favorable risk-reward situations. I only invest when the upside potential outweighs the potential risks.
For instance, when investing in growth stocks, I usually limit downside risk by cutting losses quickly and letting profits run when big winners emerge.
On the other hand, when buying value stocks, getting them on the cheap mitigates some downside risk by buying them at low valuations.
The point is that there needs to be enough potential profit in the game to justify risking your capital. If the potential pay-off in an investment is low, then it makes no sense to invest in it if any downside volatility exists.
And the current poster child for this kind of investment now is the long-term U.S. Treasury bonds in the current super-low but rising interest rate environment.
Long-term Treasuries - A Bad Bet
Treasury bonds are widely perceived as a "safe" investment because of their extremely low default risk.
Although Treasuries won't default, that's not really the point.
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Nice point but lacking examples of growth stocks.
Cheryl has a good point. I'm out of bonds But don't want to sit on cash. What can you do for me today. Equities sound great, which one's. Are you good at this? I actually think you are, however I seem to always buy your worst. AMD & Delcath. What can you do for me today? I set my trailing stop at 10% instead of 25% so I really understand that investing contains risk. My account is not big enough to buy every recommadation. Keep doing what you do. I might hit one some day.
Some good points. For Mark and Cheryl above and for anyone else who may be interested there is a very savvy group of investors on the site valueforum.com Worth checking out the stocks they discuss on a daily basis.
It makes sense not to invest in T-Bills or long bonds.
This analyst and a few others are also saying not to invest in REIT's because rising interest rates will hurt them.
But that doesn't make sense. If rates are rising it means the economy is getting better and inflation will rise too.
So owning a REIT makes sense because it can raise rents to keep up with a growing economy and rising inflation. And the value of it's properties will rise along with the economy and inflation.
In particular, REIT's that own buildings and just rent them out on long term triple net leases are ideal – apartment REIT's (such as TN.UN) and senior care home REIT's (such as HLP.UN).
When interest rates rise a lot of people can't afford to buy a home so they rent an apartment. And given the aging demographics in North America, senior care homes are in great demand now and in the future.
I'm just a very small private investor, and I own shares in both of the above mentioned REIT's.