It sounds from your comment like there is _nothing_ that won't be devalued, even gold. Is real estate worthwhile?
(Note: I am in the EU not US.)
The counter argument to this is that the above approach absolutely requires an iron discipline. And without experience non-professionals are prone to making very costly mistakes (e.g., invest on feelings, double down inappropriately, etc.). So, a general audience advice is usually: do not invest money you need within 5-10 years and do not make rash decisions; it is better to ride this train down and then hopefully back up than jump randomly. And diversify (across countries, economies, asset classes, etc.).
Just my 2c; not an investment advice!
On the contrary, for the past 20+ years the general advice has been to specifically aim for the alpha of zero ("just use index funds"), not for a positive alpha ("don't try to beat the market", etc.).
> No investor aims for a negative alpha, regardless of the economic climate.
Factors other than alpha are way more important for most people. Many retirees put a high value on low volatility or stability of dividends and are perfectly OK with getting a small negative alpha as part of the package.
Original hedge funds (before they joined a cutthroat trading jungle) set up with a similar goal in mind: a small negative alpha, but protected against the loss of the principal. And had plenty of wealthy investors who were happy with this deal.
Alpha becomes the critical parameter to optimize for when actively investing in times of turmoil (then a negative total return on a positive alpha on the down leg is a success). But few people actually do that, so few care about alpha.
> do not invest money you need within 5-10 years and do not make rash decisions; it is better to ride this train down and then hopefully back up than jump randomly.
Gaming the market successfully requires a ton of skill and knowledge, and even then you are not guaranteed success.
Most people are better off focusing on asset-class diversification (i.e. spreading money across many different kinds of asset classes - i.e. physical assets, securities, commodities, cash, etc) than playing just the stock market.
And even when playing the stock market, most people are better off focusing on "time-in-the-market" vs "timing the market".
The problem with inflation is that you need to protect yourself before the fact, and at this point, it's difficult to read to what extend the fed will respond with rate hikes and how much inflation we get going forward.
In my personal view, it would be stupid to hike to 10% since that will also cut off the needed supply response: this will decapitate energy, farm, and housing expansion while at the same time decimating all forms of wealth. But there is a possibility depending on how trigger happy the fed becomes.
More likely than not, they raise rates, but it stays below the rate of inflation (3-5%), so anything that yields above that range is a good investment. Anything below would be protective.
As for stocks, I'm looking at individual companies that are cheap with high cash flow that have macro tailwinds, but I'm still waiting. There are always bull markets inside of bears, but you have to look for them. Mind you, bear markets have vicious rally from time to time which fool people into getting an all clear signal. A bear markets job is to bleed everyones money dry, which is why I'd recommend people stay away until no one is interested in stocks anymore.
You need complete despair.
The only reason Volcker managed to bring down inflation is because he was willing to actually do what needed to be done. If borrowing money is cheaper than inflation, why would anybody not just continue to borrow money indefinitely? The Federal Reserve can fight inflation or it can fight a recession; it cannot do both simultaneously.
You have to decide which is a bigger problem: a recession, or inflation. The notion that you can walk a tight rope between the two is disconnected from reality. And while you continue to make inflation worse, you only make the inevitable recession worse. Tick tock.
> You need complete despair.
I agree. We are fucked.
Yes, understanding what's causing inflation matters. I'm not saying it doesn't. But when you have a crisis, you want to focus on mitigation first and then root causing it after the situation is averted.
Also you mention two possible causes of inflation. Limited resources and distribution, and companies deciding to raise prices because they can. What about the Fed printing money like crazy, flooding the M2 money supply? That's the one that's relevant to this conversation.
M2 is only relevant to a point. The increase in the money supply does not, in and of itself, cause any change in prices at all. Individuals and corporations have to make explicit decisions to respond to what they can see of the M2 effect, and none of these decisions are a law of nature. Rents don't have to go up just because M2 grew. Landlords sense that they can, and then they choose to do so. They could choose not to do so, too, but they don't because we're taught that this would be irrational, or something.
The law is called supply and demand. If there are more dollars and the same amount of resources, the value of a dollar goes down.
Let's just agree to disagree. Cheers.
Is a certain amount of rate increase justified? Yes, you don’t want an inflation spiral to develop. Beyond that, we are going to have to live with a certain amount of inflation until the situation in Eastern Europe normalizes and the supply chains normalize after COVID. And the interest rates should be kept on the lower side so that companies can still finance solutions to this mess.
The latter is only possible if there is too much money in the system, the signal about wheat production gets lost. As the feds money printer doesn’t work evenly, those who are closer to it get more money. I can only speculate that eventually, like any corruption, the effect is to diminish productivity in the real economy in favor of a special class.
When your employee is making gigantic profits, asking for more in wages has no relationship to the money supply.
They won't "normalize" though (imho), as the reason is not really COVID anymore, it is China gaining ground and trying to do as much damage to the western economy as possible.
While they did not beat the index in the last decade, I'm fairly certain they will going forward or more importantly minimize the drawdowns.
devaluation of everything is a consequence of unsustainable economics and the fix is not to find a convenient hidey-hole for your money but to invest time, money and attention building a future sans witless speculation, profligate consumption, public and corporate unaccountability, and consumer monoculture
“Spend time at your church, and spend money to invest in a local private school” would line up perfectly w/ 75% of Republicans that I know, (and, if I may assume your views, probably does not line up with them); and yet I think it is a very similar line of thinking.
I am trying to orientate the way that I spend my money and my time more towards my local community. It’s surprisingly difficult. Not everyone does it. And we would be better off if they did!
spending time building a religious or spiritual community is fine by me, especially if it provides material services to the locality and a sense of civic responsibility
also fine with private schools although I do think they should cater to students without the means to pay exorbitant tuition (some provide tuition aid, in fact I went to one that did) and I think there is something to be said for allowing public schools some degree of curricular independence, which might make them more appealing to those who presently prefer private alternatives
really I think there's a lot most people can agree on and I hope we can begin to identify less with team R or D and reason from principles in our politics
> It’s surprisingly difficult. Not everyone does it. And we would be better off if they did!
totally agree, it's difficult but worthwhile!
good point
some skills will fare better or worse than others, the question is which
You’re not going to outplay market trends, and if you’re young/middle aged then it doesn’t matter any way.
This notion of passive investing that has been pounded into peoples heads for years is complete bullshit and has only worked because there was always someone else ready to pay more for the same asset and because rates were perpetually held low. Some points to consider:
(1) You have fewer millennials than baby boomers, as the baby boomers cash out from their vanguard accounts, who makes up for the difference?
(2) If the S&P 500 contains companies built for a certain macro regime (low inflation, low interest rates), and the macro regime is shifting, you can be penalized by owning a set of assets that do not provide adequate returns (Tesla is currently the 5th largest weighting in the S&P, they don't pay you squat.)
Go look at charts of the S&P 500 beyond the last 40 years when rates were more variable, you'll see the market can at times be a shit investment vehicle that might not give you a return by the time you retire and on an inflation adjusted basis has a negative return!
Buy low, sell high. Save cash and be patient.
What does this even mean? That you invested the only money you ever invested entirely in the relatively brief period of the dot com peak? Who does that? (Obviously not nobody, but ...)
To all effects and purposes, nobody does that. So what it really means is "the money you invested during that one period (perhaps a year or so), and likely only the money you invested in dot com and adjacent stocks, has yet to be made back". In the meantime, the other money you invested before and after the dot com peak has done rather well, unless you specifically made some particularly disastrous choices.
That's pretty common for a mortgage
Great advice. So, ummmmm, how long is patient enough? 18 months, 3 months? What's low? Is this the lowest it's going to get? If you have answers to all of this, I want to invest in your fund.
The Boomers are using or investing that cash, though. Sooner or later anyway. And that cash would flow to the current owners of the things they are patronizing.
It's not like they're investing in dry ice and then throwing it in the ocean.
If you went all-in.. had no money in before and never invested after. Sure..
Most people cannot play the stock market well, and even those who make it their day-job often don't end up playing it well. The reality is that the stock market is just too random to game reliably.
This is the first big downturn I've been prepared to invest in, so personally I'm going to buy more than usual. I see it as stocks being on sale.
Japan is the common counterexample. It is entirely possible the stock market will stagnate in the future as the era of American economic hegemony comes to an end.
https://www.statista.com/statistics/188165/annual-gdp-growth...
At any rate, GDP growth is currently negative for 2022 and China's economy is still projected to overtake the U.S. in a matter of years.
That only provides a counter example to investing all your money into a single country. Unless you think every stock market in the world is going to do poorly, that's a reason to buy a globally diversified index fund (like VT), so even if American economic hegemony ends, you can pick up on growth of other countries.
Why does it have to be a western country?
> I don't wanna invest in China as that could be throwing money into a black hole.
There are countries other than just Western countries and China: namely, African countries and SEA countries.
Whether real estate is worthwhile depends on your local markets. In some parts of Europe it might be. If you need a place to live, and you think the prices are reasonable (e.g. it's a market that hasn't seen crazy prices due to QE and low rates) and you can afford it then I'd definitely consider keeping in mind that it's also a long term play, not a short term one. If it's purely investment property the calculation is different.
The current trend is that stocks are going down in dollar value, not just in real value after adjusting for inflation. Are you saying you expect that to reverse?
EDIT: Just to be more specific, I'm pretty sure that in ~5 years you'll at least maintain your real value and in 10 years you'll have a decent real return. Pretty decent probability anyways. In 10 years you'll beat the 10 year bond and the housing market (or gold, or cash or bitcoin). I'm sure some sectors will over-perform and some will under.
Which is changing. Houses in sunnyvale went from 750k-1m and impossible to find one for sale to 350k (yes really!) and on the market for years around ‘08.
Nope. For one thing, there's the largest generation of the 20th century at peak retirement, cashing out of family houses that have gained huge amounts of value, and looking to move to amenity-rich locations.
For another thing, the investment industry, short of other options, has started buying houses to rent them (short or long term), squeezing supply and driving up prices in many markets.
For another thing, short term rentals (AirBnb, VRBO etc.) have had profound impacts on the availability of property in heavily visited areas (in fact, it's not so much absolute visitation rates, but vists-per-resident that characterizes this).
Other factors too. That doesn't mean the market can't crash, but it will be something very different from what happened in 2008.
The boomers heading into retirement situation is a reflection of 40-50 years of economic policy and has no connection with recent "cheap money".
Actual investment in single family and apartment housing is almost entirely tied to its low risk/return ratio compared with (the perception of a lack of) other options for investment at this time. The money sloshing around for investment is as much as function of the effective privatization of retirement funding as anything else.
The short term rental market is in part the perfect expression of how a relativel small number of wealthy individuals can totally distort a market to follow their own preferences, and reflects income/wealth inequality and lack of regulatory enforcement (they're freakin' B&B's people!) as much as anything else.
Cheap money has almost nothing to do with any of them.
Mostly to keep juicing the economy, which has steadily been needing it more and more to grow/less responsive to stimulus.
Folks I know who have done the AirBnB route were often getting mortgages and buying properties to let out, using the short term cash flows to pay the (low interest rate) mortgage.
Which makes sense as an investment, because the mortgage was cheap (cheap money) compared to current cash flows.
It has become more and more pervasive, until it stopped being able to make money due to saturation. Younger folks traveling around during Covid using AirBNBs helped (they were trying to avoid lockdowns and ‘dirtier’ hotels), but not sure how it is going to play out now.
Anyone who had a 30 year mortgage they got then is going to do pretty fine though as long as they have cash flow.
They can only cash out if people are willing to buy. And fewer people will be willing to buy (at least at the prices the retirees want) with interest rates going up.
So the retirees will either put off their plans for a while in the hopes that things will recover, or will accept lower prices for their homes.
> For another thing, short term rentals (AirBnb, VRBO etc.) have had profound impacts on the availability of property in heavily visited areas
Is this true? Last I was reading about this (a few months ago), the number of housing units in San Francisco listed on Airbnb was around 8k, which is around 2%. Meanwhile, a report from this February estimated that over 40,000 residential units (10% of total) in SF were sitting empty in 2019 (and that number has likely been growing over the past 3 years, as it has been since 2013). Why are we all upset about short-term rentals when so many real estate speculators are sitting on more than 4x as many vacant properties?
I would guess partly because almost all of the short-term rentals represent either (a) previously long term rentals that are no longer available to people who live and work in that location or (b) new construction that doesn't address housing shortages.
And speculation.
Bay Area has the highest price to rent ratios in the US. Rent really hasn't changed that much since 2020 and if the betting stops it'd make sense to go back to 2020 prices (which is like a 50% "crash" in parts of the Bay)
I’m sitting on $600k+ cash for a down payment and if I see townhouses correcting I’ll snatch one up immediately. And I am a very small fish compared to the wealth that’s around.
My personal bet is that the Bay Area will just stay at 0% growth until the market recovers.
A lot of speculators also bought assuming increasing property values, so if it’s flat for 5 years or whatever, then that’s going to nuke their gains. Meanwhile they’re paying out real cash every month.
The rental market in many previously hot areas (SF, South Bay) has taken a hit, but not sure where it will land long term.
Medium term there is a LOT less pressure with a lot of techies having relocated and remote work being accepted.
Don’t forget though that anyone who is a ‘bigger fish’ (looking to invest many millions or half a billion or so) in a high inflation environment is going to be looking for as sure a bet they can with as high a return they can.
And since money isn’t as cheap anymore, those are easier to find and get.
So while it may not be bad returns, it may be bad returns compared to something else (a new business, for instance).
1) food in this economy is still delicious so heart disease is still the cause of 50% of deaths, and
2) humans only have one copy of p53 from each parent, so everyone dies of cancer if Heart disease or <random> doesn't get them first.
Given 1 and 2, the boomers are on their way out. My mom (born 1953) might make it another 20 years, but my dad (born 1945) is living on borrowed time (20 pk-yr history and cancer).
71 million alive in 2019 of 76 million born[0]. If the oldest boomer is 76 now, their life expectancy is over 10 years[1]. Most boomers have more years life expectancy than that i.e. most boomers will live longer than 10 years. And in a couple one will live longer, perhaps not releasing a house.
Aside: most people mentioning “boomers” normally are saying something offensive - similar to making inane stereotypical comments about disabled people as an example. The term is very American-centric, and in my country the word mostly is used offensively. We mostly don’t know what gen__ means either.
Edit: 25% of boomers don’t own a home. Today, white millennials are almost three times as likely as Black millennials to own their homes. If you are white, then every time you make a comment about a group that has it better off than you, lookout behind you. Goes double for complaints about the wealthy if you live in the US: you are the wealthy from the point of view of most people in the world.
Disclaimer: I am not a boomer.
This is already happening in the Midwest. Builders have stalled or trying to wait out this supply side shortage - the prices of all building materials have skyrocketed because of it and just in an adjacent neighborhood where they had torn down three houses, the lots are all vacant now and for sale. Builders who had planned to build huge mansions all pulled out and are now just selling the lots.
This has also had a ripple effect on down the amount of houses up for sale. My wife and I decided not to move and have remodeled our entire main floor and are now working on the bathrooms. We're staying put. I heard on a weekend real estate show they were saying two months ago, that out of the 15,000 houses/condo's/townhomes available, when you start to filter out townhomes and condos, then take out all the million dollar and above houses? You're left with less than 200 single and multi-family homes on the market. An absolute staggering number.
A lot of people on both sides are trying to wait this out. But like you said, its going to have some serious long-term consequences for everybody.
I’ve always put most of my money into ETFs, mainly S&P500. It has served me well so far.
Just be prepared to be down with your portfolio for some time.
But hey, it’s the future, so no one can really say anything about it :) I at least am gonna see through this one.
Developers can save companies money - handy in a recession. Developers can sell their skills globally (that has negatives too though...). And if a software company is still running it needs developers to fix the bugs, support the system.
I work for one of the largest health care companies in the world. In the US, there are only three or four major health care companies and they're all massive. My company has repeatedly said its too big to move as fast as smaller startups who are coming in and disrupting one niche of the entire market.
For example, we have something like 4-5 different billing systems, none of which are able to talk to each other. They're monolithic, they're 10 years past what you would consider "legacy" software. So in comes all these companies building billing apps for health care companies. My company? We can't compete, so we're constantly buying other companies, and integrating their tech into our company.
Today in Health Care, startups with good ideas and good products? They're not lasting and are being bought up at a record pace. My company? Bought 15 companies last quarter, we're on pace to buy more this quarter. So instead of creating and building this tech in-house? They're just buying up these smaller startups and using their technology instead.
My advice? Build a decent product/app/platform for a niche area in Health Care and you'd be surprised how fast one of these companies will be knocking on your door.
https://www.medifind.com/news/post/problems-us-healthcare-sy...
Then start researching that particular topic. Take something like Healthcare Billing, and all the issues with it:
https://www.collaboratemd.com/blog/the-top-10-challenges-ass...
Then you take one of those issues and see if you can find a problem worth fixing. Develop a program or application around solving that particular problem. I'd also start looking at attending healthcare conferences and focusing on that issue and going to see what industry people are complaining about and see if you can get more insight from them. Start networking with people at the conferences.
It wouldn't take long to get an inside track through networking and research to find a niche where you can build something that will really get a companies attention.