27 MarConfusing Times For Financial Markets

Understanding Classes of Assets

For anyone attempting to understand the conflicting finance news or looking for good investing tips, these are confusing times. With the stock market hitting new highs, each class of investment vehicle, from real estate to commodities to Treasuries, seems to be giving different signals.

The basic principle underlying all investment is the concept of getting a return on investment as well as a return of investment. With the corollary that higher risk means the right to demand higher returns, the basics are straightforward. These basics violated many investors’ sense of security, however, in recent times.

Since the market meltdown of 2008, when many people lost over 50% of the value of their retirement accounts, investors have been on a huge seesaw when it comes to their portfolios. The heavy losses in equities caused many to flee the markets. Now, they see that if they had just waited, all the losses would be recouped, and then some. In the interim, they have observed very significant rises in the commodities market, and especially in precious metals.

increase in money and commodities

The Importance of Diversification

Not too many years ago, the process of investing found very few people considering different investment classes. For over a century, the stock exchanges, or equities markets, have outperformed all classes of investment. That track record led people to buy stock and forget everything else other than some bonds. Things have changed. The past decade is the first time the precious metals markets broke this historical precedent. With the meltdown, the concept of diversification is a leading investing tip.

In 1990, the concept of diversification of portfolios won the Nobel Prize for Harry Markowitz. Since then, financial and estate planners approach long-term investing from a new perspective. To understand the contrast, it is important to understand the basic differences between equities and commodities, particularly the precious metal commodities.

Securities and the Stock Market

Most people understand that the stock market, and specifically the Dow Jones Industrial Average, the “Dow”, is based on the trading of stocks and securities of the larger publicly companies. Shares of individual companies rise and fall based on their performance in sales and profits. There is a larger, communal effect on the market based on overall economic times and personal finance news, including the affect on your potential chex systems status.

Over the years, many people took great comfort in the fact that, in spite of ups and downs, the overall DJIA continued to rise at an overall average of 4.8% annually. From January 2000 to February 2012, however, the total return for the entire period was only 10%. True, those numbers must also eventually be put into the 20 and 30 year trends. The fact is, however, that this trend changes traditional wisdom about the equities market. For all the risk it represents, as shown in 2008, an investment of $10,000 in January of 2000 would have gained only $1,000 in value, or to $11,000.

The Gold and Silver Decade

The recent history on precious metal investments provides quite a different story. Anyone buying an ounce of gold in January of 2000 at $282 an ounce could sell that ounce on Valentine’s Day 2012 for roughly $1,700. That means the same $10,000 investment would have appreciated to a value in excess of $51,000.

Bars of gold and silver

Silver tells an equally dramatic story of significant returns. Again, using a January 2000 spot price of approximately $5.00, and in 2012, the silver price per ounce at $33.60. Here, that $10,000 investment yielded an increase to over $53,000 in value. No other asset classes available to the investing public performed to these levels over the past decade.

These numbers are impressive and generate a number of questions. Foremost among the questions are two. First, why did this historical occurrence come about? Secondly, what does it mean for the next decade of investing?

Will investors continue to place silver and gold in an ira or 401k as a long term strategy?

The Looming Tsunami

Behind the currently booming market, many economists feel they have already felt the earthquake that will mean the end of that upturn. The ongoing spending by governments around the world, including the U.S., makes most economists and financial experts believe that a veritable tsunami of inflation is headed to our shores. In such situations, commodities are seen as essential asset classes of a diversified portfolio.

As to the future of these trends, the answer to the second question only compounds the concerns. As governments continue to spend, their debt levels and debt service continues to explode. Many countries, such as Greece, are at the tipping point relative to debt becoming unmanageable. When this happens, there will be even more upward pressure on the prices of gold and silver. When, not if, that happens, according to many, the next decade will, in fact, be the decade of precious metals.

14 FebWhat A Person Should Know About Investing In Commoditites

The commodities market is a market that has the ability to help an investor turn a high potential profit; however, many individuals are not aware of how this market works and what it could do for them. This market can be a lot more stable than the stock market, has numerous safe investment options and a person can invest as much or as little money as he or she feels comfortable with.

Commodities are essentially items that have inherent value. Agricultural items ranging from sugar to wheat are all a part of this market, as are textiles, timber, livestock, and even precious metals such as gold and silver. However, while either of these metals can be purchased in bar or coin form, most people who invest in the commodities market do so by buying ETFs.

How to Invest

First of all, a person will need to choose which commodity to invest in. Keeping an eye on both the finance news and world news will enable a person to see which investments in this market are safe and which are not. For example, it would behoove a newer investor in gold, to keep up with the current spot price of gold.

One should also gauge profit potential, risks and budget factors when choosing an investment. Those who have a limited budget may want to stick to investing in a single commodity while others may want to diversify their holdings by purchasing various investments. At the same time, investing in a mixed commodity basket can be an excellent idea and there are some mixed investments of this nature that are reasonably priced.

Once a person has chosen which commodities he or she wants to invest in, it is time to choose how many ETFs of any given company to purchase. Once again, this is not something that should be gone into lightly without proper research. It takes time and in some cases even professional advice to weight up the options, consider the pros and cons of each one and then make a decision. Those who do not have prior experience with the stock market may want to hire a professional broker who can help them learn the ropes.

Being Aware of Tax Laws

The tax laws governing this particular type of investment are quite complex. However, it is very important to be aware of these laws because running afoul of them can have dire consequences.

Those who want to sell their commodity investments will find that there is a capital gains tax that will need to be paid, unless the investments are being sold at a loss.  There are also long term and short term gain taxes on these investments; the short term tax rate is the same as a person’s regular income tax rate while the long term rate is a standard 28% of all money earned via this investment.

It should be noted that investing in physical gold and silver is perhaps the simplest commodity investment that a person could make. One does not have to pay a sales tax on these items if the coins are made in the country where one is living and/or a person is buying the gold or silver from an internet retailer based in a state or country that does not charge a sales tax for online purchases. While there is a capital gains tax for those who sell their precious metals at a profit, this only applies if a person makes more than $10,000 in a year.

Know When to Sell

Being aware of when to sell any given commodity is just as important as knowing when to purchase it. Once again, a person will need to keep tabs on the world news and financial news to see when a particular commodity is gaining or losing value.

However, a person does not necessarily have to feel obligated to sell any given commodity investment simply because it is doing poorly at the moment. One of the beauties of investing in commodities is the fact that these investments are based on items that have always been valuable and always will be. Instead of immediately selling an investment because the price seems to be going down, waiting for some time could be a good idea. Many commodities are very likely to rise in price again and a person who has the finance and patience to wait for a few years before selling an asset can potentially turn a high profit.

These investing tips will help a person get started in the commodity market. However, investing in this market can be quite complex and one will want to learn everything there is to know about any given commodity before investing in it. On the other hand, the good news is that those who buy one or more commodities are sure to find that this market is not only safer than the stock market but also has the potential to be highly profitable.