Over the weekend, we scoured the news for expert advice on how to approach investments in 2015. Numerous strategies emerged, ranging from straightforward tips to more complex considerations. Recommendations such as paying down adjustable-rate loans before interest rates rise and saving 10 to 15 percent of gross income for retirement certainly stood out as practical.
However, other suggestions seemed appealing at first but offered little real guidance upon deeper examination.
For instance, National Economic Forecaster Robert Genetiski advised against making investment decisions based on predictions of either significant short-term gains or impending doom. While the first part of his counsel makes sense—pursuing a hot stock tip is typically a misguided approach—the second part leaves something to be desired.
At Economic Prism, we advocate for considering potential negative outcomes when investing. Just because a scenario seems unlikely doesn’t mean it lacks importance, particularly when significant risks are at play.
Indeed, most of the time, focusing on pessimistic scenarios may be unnecessary. Yet, every now and then, such vigilance can protect you from substantial losses—and even provide an opportunity for profit.
Bull Markets Don’t Last Forever
The stock market has experienced a robust upward trajectory since March 9, 2009, with the S&P 500 climbing over 200 percent—an impressive feat facilitated by one of the most aggressive monetary policies seen since World War II.
Do you believe this trend will continue for another six years? Will the market keep thriving, or will it face a downturn?
Ultimately, these questions remain shrouded in uncertainty. However, it is a well-known fact that bull markets do not persist indefinitely, and it’s unrealistic to assume that the Federal Reserve can sustain elevated stock prices indefinitely. Several factors could signal a shift in market dynamics.
For instance, there could be a realization that the economy is weaker than previously reported by the Bureau of Economic Analysis recently. A sharp decline in oil prices might induce financial panic, or deflation may grip the U.S. economy as the dollar strengthens internationally. Alternatively, the stock market could correct itself purely as a reaction to its prolonged rise.
The Number One Investment for 2015
This year, stocks might very well increase by 10 to 15 percent, or even as much as 30 percent. Nevertheless, they could also face substantial declines. A drop of 40 percent would mirror the bear markets of 2000 and 2008.
With this in mind, consider what it feels like to lose money—it’s akin to undergoing a root canal. We’d prefer to miss out on the final 10 percent of a bull market by selling too early rather than suffer a 40 percent loss by holding on for too long.
Think of it this way: if you lose 40 percent, you’ll need to make 67 percent just to break even.
This year could indeed be memorable, with the possibility of the bull market finally reversing and price deflation setting in. Moreover, the Federal Reserve might resort to printing money to buy stocks, while the government could issue a “tax rebate” directly into your bank account.
Ultimately, the best investment for 2015 might just be cash in the form of U.S. dollars. While this may not seem exciting or glamorous, it accurately reflects a prevailing trend.
Dollars are gaining value, and as the stock market declines, you’ll find yourself in a better position to purchase shares at rock-bottom prices.
Additionally, consider keeping some cash stashed away in case ATMs and credit cards become unusable. Although this may seem like an overly cautious approach, the risks of neglecting such a possibility could be severe.
Sincerely,
MN Gordon
for Economic Prism
Return from The Number One Investment for 2015 to Economic Prism
