The global economy is slowing and taking the US stock market with it. Where can you invest your money when stocks take another beating as reported by USA Today?
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Wall Street is having another rough day as the Dow is down more than 3050 points in afternoon trading amid a fresh slide in oil prices below the key $30 per barrel mark and continued fears about slowing global growth.
The rocky start to 2016 for stocks is continuing as investors contend with well-known yet persistent headwinds ranging from continued price declines in the oil patch, concerns about the impact of China’s slowing growth on the U.S. and other world economies, and questions surrounding the pace – and timing – of interest rate hikes from the U.S. Federal Reserve.
Investors are not certain when to buy, when to sell and when to sit on cash. Where can you invest your money today? How about alternative investments?
Alternative Investments
If you are losing money in the stock market and are not sure about bonds what are some alternatives aside from a set of CDs in the bank? CNBC looks at alternatives to stocks and bonds.
So-called alternative investments are generally defined as anything that falls outside traditional stock and bond investments and whose role is to potentially zig when the broader markets zag. The goal is to mitigate portfolio volatility, hedge against downsides and boost portfolio returns in a way that is not tied directly to the stock market’s performance.
While risk is definitely involved with alternatives, not all are more risky than stocks. And some are more easily understood than others.
One alternative is called an interval fund. These operate largely like traditional mutual funds but invest in less-liquid asset classes, such as reinsurance or various real estate opportunities. And there are only certain times you can buy into the fund or unload your shares (thus, the “interval” tag).
Reinsurance is insurance for insurance companies. This practice allows large insurers to spread out their risk. You invest your money for a given period of time in an interval fund, take your profit and reassess the market. The article notes that interval funds that deal in reinsurance or so-called life settlements both of which are easy concepts to understand. The folks who invest in these sorts of interval funds expect to see about an 8% per year return on their money.
Why Not Just Cash?
If you simply have no idea where you can invest your money what is wrong with cash? Federal Deposit insurance will protect $100,000 deposited in any given bank. If the worst case scenario of deflation occurs you will be in exactly the right place. The Street published an article last year about how to invest in the face of deflation of the U.S. economy.
Prices fall and the value of the dollar increases as a result of deflation. Viscerally these may appear as good things, however it’s highly counterproductive for spending, which is the very action that buttresses economies – especially the U.S. economy. Holding cash actually becomes an investment with a real yield. Coalesce this with the prices of goods and services falling, and it becomes prudent to put off purchases as you’ll be able to procure them for less if you wait.
Deflation is an economy killer. But where can you invest your money when the value of the dollar is constantly rising and the value of everything else is falling. During times of inflation the wisest personal investment decision is probably to hold cash as cash in hand. Unfortunately the bank will charge you interest on your deposits during such times! The nice part about holding cash is that when the economy starts to recover and promising investments present themselves you have saved your capital and are ready to re-enter the market.