Stay Diversified - Resist Temptation
Real Estate (Photo credit: wvhomes)
Volatility returned to the markets this week with the US employment situation showing weakness, turning investors to bonds again for safety and resulting in a minor sell-off in the stock market.
Again the best strategy seems to be a broadly diversified portfolio with no more than 20% in any one asset class (bonds, stocks, real estate, precious metals and cash).
I prefer not to worry about what's happening from day to day in the markets - trading is very difficult to do, even for those who are professionals.
Debt is the new currency, so leverage as much as you can in real estate while ensuring you have positive cash flow. I'm not a fan of leverage in situations where you can't cover the debt service with the cash flow from the asset. Leveraged investments in precious metals, for example, only work out if the underlying asset skyrockets in value and you sell your position. I much prefer leverage in real estate investments.
Lately, it has been very tempting to sell bonds, increase investments in stocks and real estate and minimize cash holdings. It is important to resist the temptation and stay diversified. At least this way if you suffer a loss in a particular asset class, you won't lose a large percentage of your portfolio.
I believe we are in a perpetual cycle of booms and busts that are driven by credit expansion. Each one is successively worse than the one before. I fear that the next boom and bust will be far worse than the "Great Recession" that we just experienced and indeed many still experience due to high unemployment and destruction of wealth that persist. This is why i favor a diversified approach and also lean toward hard assets (gold, silver, oil/gas real estate) versus financial assets (stocks, bonds, mutual funds) to protect and grow wealth, particularly when we are facing the threat of inflation - a consequence of global central back "easy money" policies.
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