My Investing Strategy for the Next Decade
I try to take a longer term approach to investing and if you read my post on Kondratiev and the follow up post on K-waves, then you know that I give some credence to his theories. It only makes sense that bubbles arise out of human emotion and the bust that follows would cause those same individuals to swear off investing in that particular asset class for several years.
In fact, I read an article last night about the lack of interest in stock mutual funds following this recent “lost decade” and someone made the comment that investors were leaving the market and not coming back.
Because I believe that K-waves are real and the description of winter corresponds to the situation that is occurring now, then looking toward assets that do well in spring would seem to be the logical choice. Also because the K-waves are typically 40-60 years in length, it would seem that most of the seasons would be about 10-15 years in length as well.
The gold bull (gold does well in Kondratiev’s winter) started in 2001 so I would estimate that we are more than halfway through the gold bull at this point. I will be offering further comments about gold in a future post.
Preparing for Spring
Since it is a little late to really be thinking about winter, I think the best thing is to begin thinking about spring. So what investments do well in spring? Well, think about the bubbles that burst in the last decade. Stocks and real estate come to mind. These are the investments that should do well as the business cycle begins to spring to life and gather momentum.
Personally, I think I have about 4-7 more years before these investment classes begin to take off. So I plan to pay off as much debt as possible as quickly as possible to improve my balance sheet in order to purchase more real estate when prices are low. I already have some rental houses from the past decade and would like to own several more but credit is tight so I will need to have a pristine balance sheet when credit begins to loosen up.
In my area, there is still quite a bit of real estate supply available so I think it will take some time to work through it all. If interest rates increase, that will only make it more difficult for those who would marginally be able to afford to purchase in the first place. My market will always have renters so I don’t think it will be a big issue. I just want to make sure that the real estate I purchase will have positive cash flow.
As far as stocks go, I will continue to invest in stocks through my retirement plans since I have a long term horizon of almost 30 more years. I suppose there isn’t anything fancy of magical about my investment thesis over the next decade. My plan is to continue to save as much as possible in order to pay off some debt and add to my real estate holdings while continuing to invest in stocks through the 401(k).
I do not, however, plan on investing in bonds since interest rates have almost nowhere to go but up. Bonds have done well for 20 years so it is time for their season to end. Will it be this year or next or maybe 2013? I can’t be sure but I do know that when interest rates start to rise, bonds will fall and the $1 trillion that have flooded bond funds over the last decade will begin to leave and need a home. I believe that home will be stocks and real estate. And spring will be just warming up.
Always fascinating to hear about investing plans of fellow bloggers! I’m out of bonds too for the moment.
Right now substituting bonds with div stocks.
Dividend stocks are a great way to go. Getting paid while waiting for a rebound in the market can’t be beat.
Already read about my strategy, build up the dividend stocks! I also have a simple type IRA from the days of working for the man, but they make it difficult to keep putting in. Would love to get into real estate but credit is bad and working the debts so maybe get back into REITs with buyandhold.com
enjoyed your articles on the K waves and I can see it in the past, hope it continues holding true. I have about 20-25 years to go myself.
I like the idea of dividend stocks more and more.
As I get closer to retirement, I am buying more Treasury inflation protected securities through mutual funds. The current yield is just under 10%, not bad in this volatile market!
TIPS are a decent idea. I always worry about the underestimation of inflation, but some coverage is better than none. Although you can’t argue with 10%. Those are Madoff type returns.
Yes, it is interesting how some people view the low interest rates as an opportunity to add to their debt levels. Others want to use this time for paying them off. I suppose either may work, depending on the time horizon, expected income over the next several years (ensuring it is rising more than the rates), etc. Cheers!
Adding to debt may not be a bad thing if the interest rate is low enough. But by the same token, paying off debt is a sure fire investment.
I will probably buy some real estate too, and will continue on with stocks & bonds.
Very good. A little diversification goes a long way.
We are seriously thinking of some investment properties. We aren’t quite in the position to buy yet but it is in our plans. I like the feeling of tangible touchable investments like property. The paper sometimes scares me.
There are a lot of people who like the idea of investments that can be seen and touched.
Just curious looking for a Cliffs Notes type of answer…
How would you compare K-Waves to Victorian England? Late 20th Century Japan? Credit Crisis 2008? Any other economy that has risen just to later fall.
Interesting lesson I believe.
Each society will have its own booms and busts based upon the greed and subsequent fears of the people.
I keep thinking bond rates can’t go anywhere but up and then the Fed goes and whips out a new trick. I’m currently short treasuries by shorting the 3X leveraged long bond ETF TMF and it isn’t really paying off yet, they keep tryin’. If I can stick it out longer than the
Fed, it should be the trade of the century – it’s my margin account vs the Fed…
One man vs the Fed. Might make a good reality series. I hope it all works out for you. Of course you know that Treasuries will decrease in price, it is just a matter of when.
I like the way you think. Investing in real estate and stocks when everyone seems to hate them is the perfect time to go long. I haven’t purchased RE yet, but I’m considering it in the next 2-3 years.
I’m also at 0% bonds. I’ll wait until rates rise and see where that market is. For now, I’m all equities.
I have zero bonds also. I like your blog and read every post since it is in my reader.
Our real estate plans for the moment is having paid-off living spaces. I agree that the huge overhang of inventory in residential and commercial real estate will either be used up, or decay past the point of refurbishment.
Having a paid for home is a great plan. I will be working on paying off debt as well.
Getting into real estate in the near future is probably a good bet. Alternatively, investing in construction stocks is a good contrarian play right now which I strongly believe will deliver impressive gains over the next decade as the economy recovers. For the faint of heart, Home Depot is a safe investment. For the more aggressive value investors, there are MANY severely depressed home builders whose assets alone are worth far more than the stock valuation.
You offer some reasonable ideas here. Thanks for the tips. I will have to check out your blog.