Tuesday, June 17, 2014

Cash Is Dead: Is Time To Push All In The U.S. Stock Market?

A stock market bull put this chart up on his website today to visualize how cash has under performed the general U.S. financial markets over the past decade. During the tail end of reflationary cycles, charts like this are put up to celebrate "stocks for the long run" and provide reason for investors to rush into the stock market with all available capital.

Over the long run (50 to 100 years) if you are investing in a globally diversified stock portfolio and reinvesting your dividends, I believe stocks are the best investment vehicle. That is based on the assumption you do not want to do any work with your portfolio and just passively invest money.

If you add active investing options to the mix, I personally believe that real estate is the best long term (50 to 100 years) investment vehicle available due to the leverage, control and tax advantages real estate provides.

I believe cash and commodities are by far the worst long term investment vehicles. Cash offers the least returns (currently a guaranteed 0%) and commodities provide no dividends (like stocks), interest payments (like bonds) or cash flow (like real estate). However, there are times throughout history when both cash and commodities in the short term can add more value to a portfolio than the big three (stocks, bonds, real estate).

I believe we are at one of those moments.

Cash is currently the most hated asset on the planet. After three consecutive years of price declines, certain commodities are equally hated (precious metals, agriculture, uranium, rare earth metals, etc.)

If you want to put together a portfolio that you will not look at for another 50 years, I would hold almost exclusively stocks with a smaller portion in bonds and real estate. If you want to put together a portfolio that will perform better over the next 36 months, I would think about adding cash and certain commodities to your portfolio mix.

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