This year I completed the first and most important step in wealth building: I got completely out of debt (this is how I did it)! Now that I am finally able to put money away, the temptation is strong to hurdle myself into this frenzied market. “We’ve hit the bottom! Recovery is here! Don’t miss this chance to make some money!” They say. But I’m just not buying it (pun intended).
I know the old adage, “Buy low, sell high.” But with such common wisdom, why does this market tempt me so? It is fear. It has to be out of fear because there is no Reason in it.
So rather than accept this fearful state and dive into this lemming madness, my wife and I have calmed our nerves and are looking at reality:
- The stock market is hitting record highs: As I write, the Dow is hitting an all-time high of 15,761. Last time I checked, “Highest price ever” does not equate to “Cheap.” There are 8,696 stocks in the US alone and it doesn’t mean there aren’t cheap ones out there (there are, and we’ve bought a few), but anything following the major indices is a bubble waiting to burst. We are working to get out of anything tied to this madness and will wait for the next crash to buy things when they’re cheap again. (Just look at the Dow and the Nasdaq around the 2008 crash to see what I mean.)
- Real Estate is still overpriced. We’re not in a position to buy a house, but let’s say we were. Let’s say we found the perfect house that we could see our family growing old in, and there might never be another like it. Then sure, we’d probably buy it (if we could afford it). But we wouldn’t kid ourselves that it is part of our plan to grow wealth. Because this bubble ain’t over. I suspect the investors (like the Real Estate Investment Trusts) that have been buying up all the houses (keeping the prices up) are going to someday be giving them away because managing rental houses is no easy business. Not to mention that Americans are not curbing their debt addiction, and as interest rates go up it is going to be harder for people to afford to buy a home. It’s just supply and demand.
- Gold and silver are still too expensive. Gold and silver are an age-old hedge against inflation. And for insurance we have some and wouldn’t dream of selling it. But apart from security, is it cheap? Not at the moment. It is down 35% from the August 2011 high of $1,909, but it is still way up—85% up—from the 2008 low of $712. Yes, I believe in the long run precious metals, as well as most commodities, are headed higher as a result of inflation, but I still don’t think it’s the best deal at the moment. I hope there will be another buying opportunity for gold and silver, but for now we’re not hitting or folding.
The circus is raging. We’re not jumping in to dance with the clowns, we’re sitting on the bench, eating delicious popcorn, and watching the show. And when it abruptly ends and the crowds scurry out, we can stroll through the empty tent and pick up all the change they dropped on the ground.
What is your biggest challenge in finding somewhere to put your money?