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Tuesday, December 8, 2009

Where should long term investors invest?

The topic comes up frequently of where for retirees, long term savers, or just extra savings regardless of time horizon, put cash for safe storage and growth?

The number one real answer is, seek a certified financial adviser, I am not qualified.
With that out of the way, here is my opinion :)

The vast majority of savings should be in short-term low-yield US Treasury backed funds. Not state, not 30 year bonds, basically keep liquid.

The goal is to roll the cash into a longer term savings. But not now. US stock market is super-extended due for a correction. The US has done minimal reform, it has papered over its problems. The good news is, so has most of the world, making the US "not that bad" as being judged by it's peers.

Gold/Oil/Food/Resources? The time to load up was November of 2008. If equities pullback, as I expect it, they should deflate too.

The real question is, what is the next BUBBLE? 2000 was tech, 2008, was real estate, next up is resources (either just peaked or about to peak), the final end all bubble is US treasuries.

There is really 4 places to look to move from cash to investments. All of them require PATIENCE.

1) US international corporations - If/when the markets fall significantly, when prices look cheap again, us companies with international exposure should fare better in the next 10 years.
2) Natural resource companies - Right now, my opinion is with the market they pull back, but buying some natural resource based companies "on the cheap" to help hedge against a dollar fall . Alternately could put money into a currency you have more faith in, like Chinese yaun. (not sure if wise)
3) US Treasuries - if the day comes where US treasury interest rates go higher and higher, then one day, the treasuries change direction, perhaps after the Fed raises rates it starts to lower, 30 year treasuries to "lock in" the higher interest rates. Right now the rates are at lows compared to the last 20 years.
4) Emerging countries - once again, emerging countries are not valued cheaply. All the world markets have risen due to loose monetary standards. One day when it looks like the worst time ever to buy stocks, buy a little of emerging country index funds. India, China, are decent starts.

By investing when the next collapse occurs, or when one pops, your buing on the cheap. Right now, nothing is cheap. Make a plan and stick to it. Diversify when the sector is depressed.

Good luck, and don't put all investments in US cash and/or US stocks. Diversify into resource based funds, international corporations, and emerging markets. Thats a plan for the next 10 years.

Near term stock pricing
Slope of hope has excellent chart support/resistance lines, one dating back to 1932!
Gary's two cents on US dollar hitting a bottom and reversing.

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