I’m currently in college, but I’ve been able to pull in some money through a part-time job I’ve been working while in college. Currently, I have the money in a savings account, but it’s not growing. When factoring in inflation, I (think) lose about 4% a year to inflation. I’ve looked at CD’s, but those lose money when factoring in inflation, brokerage fees, and taxes. Looked at TIPS, but even that loses money when I include taxes. Stocks have gone to crap, and in turn, I have little confidence in making any money in the markets. What is the best long term investment (remember, I’m only 21) where I can put my money and let it grow over time? Should I invest heavily in a blue chip like Wal-Mart or Exxon Mobile? *Right now I’m thinking about buying up USO and holding onto it for the long term…decades. Demand is growing at 2%/year, and oil supply in the US (according to Hubbert) is going to peak in 09, with the rest of the world to follow soon.
Go into a high yield corporate bond fund ETF. Also, look into some stock ETF right now. Right now is the best time to buy with a long term horizon.
If you’re 21 your risk tolerance should be much higher than CDs and TIPS. You should be almost entirely invested into equities. If you’re talking long term, as in retirement, you should open a Roth IRA and get the benefit of 45 years of tax-free growth. If you think that oil prices will rise in the long term, as do I, then USO sounds like a solid choice. Look into some international/emerging market stocks as well.
Check out my value investing blog at http://dopplervalueinvesting.wordpress.com/ . My model portfolio has Hong Kong dollars, Berkshire Hathaway, Japanese yen, and a small-cap Japanese stock ETF. I’m not as bearish on US stocks as I was a year or two ago. Valuations are returning to normal. I need to start looking for bargains. When you say “long term investment”, I hope you really mean long-term (as in you won’t need the money for at least 10 years). Even Berkshire Hathaway stock (which I consider to be the ultimate conservative blue chip stock) can sometimes go down. So the investments in my model portfolio (other than the money market fund) are NOT appropriate for your rent money and are not a real substitute for cash equivalents.
TIPS might make sense as a small part of a portfolio for 1) diversification, and 2) tactical value. I wouldn’t make it more than 10%, though. If you’re in your twenties, you probably should be very equity heavy for a retirement-type portfolio. If you have cash to invest, now is probably a very good time to put it to work… I’ve been suggesting to friends who ask that they divide their equity-destined cash into eighths and invest 1/8 of the cash per month for the next 6 months, figuring that they will most likely catch the bottom of the market sometime between now and then. I don’t have them target being 100% at their equity exposure by the end, because there is still a chance that things will take longer than 6 months, but if at the end of 6 months, it looks like the bottom is in, then jump in with the remainder. This strategy allows you to get in at fairly good valuations without requiring you to know exactly when the bottom is. In retrospect, it will be obvious when the optimal time to jump in would have been, but since no one can really predict it in advance, this system seems “good enough” to me.
right now, i would buy a decent allocation into high yield bonds. they are predicting default rates 1.5x the great depression. but the credit quality today is arguably worse than it used to be in olden days. nonetheless, something worth considering. i like LT inv grade bonds - you get the duration when spread compression [lol, we’ve been waiting…] happens. LT munis are starting to look interesting also, same reason. i would hedge these positions with short USLT futures though, so its a pure spread play. if thats not something you’re comfortable with, don’t do it. it needs some timing. check out LSBRX and CGMFX. riskiest bond and stock mutual funds on the planet.