Investing Challenges in the Current Market

The markets have become significantly more volatile recently.  I believe this is largely due to the manipulation of interest rates by the Federal Reserve and foreign central banks, which has encouraged borrowing and risk taking in the stock market for a few years now.  This has had the result of distorting asset values from reality.

It's very difficult to discern where to put new money to work.  Interest rates seem likely to rise, which makes bonds unattractive at current yields.  The stock market is at stratospheric heights and it seems is destined for a correction or crash eventually - how long can the US economy go it alone when the rest of the world is in recession?  Real estate values have risen considerably since the Great Recession and don't represent the bargain they once were.  Commodities have been getting trounced due to the rotation of "hot" investor money into the stock market and the sluggish global economy - especially gold, silver and oil.

Seems like increasing your cash allocation right now wouldn't be a bad idea.  That way you are buffered from market swings and have "dry powder" for potential new investment opportunities.

Some have said the US stock market, at least in the near term is set to continue to break records.  That may be true, since there is significant momentum.  Only time will tell.

What's an investor to do?  Maybe instead of trying to find the "next big thing," it's better to enjoy the power of compounding in a certificate of deposit?  Probably not.  I'm staying diversified across a broad range of assets.  I think it's better to be able to weather any storm than to spend a lot of time trying to pick a winner and being wrong most of the time.  Sometimes the best offense is a strong defense.  I'm also not selling my gold - it may take a while, but gold will come back in time and won't lose its value like dollars will.  All you have to do is go to the grocery store or gas station to know there is real inflation in the world.  We also are seeing it every day in the construction industry - especially the rising cost of labor, as shown below.

Source:  ENR.com
Construction Costs Building Costs Materials Cost +3.3
Sep 2014The annual escalation rate for the CCI increased to 3.3% from the previous month’s 3.2%, as the index’s labor cost component rose 0.2%.
1913 = 100INDEX VALUEMONTHYEARCONSTRUCTION9870.12+0.3+3.3COMMON LABOR21069.87+0.2%+3.9%WAGE $/HR.40.03+0.2%+3.9%
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