Where Should I Put My Money?

The world's a mess.  Really.  Madeleine Albright said so.  Governments are collapsing, others are defaulting on loans, some are carrying unsustainable massive debt, and even the wealthiest countries are struggling.  So what's a poor middle class American investor to do?  Jump in the stock market?  Bonds?  Convert everything to precious metals?  Move to Belize?

My financial advisement gurus give me this simple advice:  stay in tangibles and focus on cash flow.  Tangibles, of course, are things you can touch and feel.  Intangibles, like the stock and bond markets, lack the element of investor control that is afforded by tangibles such as real estate, precious metals, art, collectables, Many analysts think the stock market is overvalued and a correction is inevitable, especially given the Fed's recent decision to ease qualitative easing.  In the next eighteen months, look for a sell off of gigantic proportions.

OK, so what about tangibles?  Let's take real estate.  This investment meets both criteria:  cash flow and is certainly tangible.  These days cash is king, but there are ways to lever into real estate.  Interest rates are still low - if you can actually get a mortgage - but as many people lost their homes and credit rating over the last few years, and the rental market is strong as those folks must rent until they can afford to purchase a home again.  In may areas of the country demand exceeds supply, and residential prices are being pushed upward.  This is especially true in areas where the foreclosure rate was the highest, like California, Nevada, Texas, and Florida.  Buy and hold is my preference, but buy and flip can be a winner, too.  Especially if the reinvestment plan is to stay in other tangibles.

Where's the smart money going?  What about such innocuous things like wine?  Wine as an personal investment is a hobby; don't expect get rich on that.  But large scale wine purchase is another matter.  This week KKR (Kohlberg Kravis Roberts), a leading global investment firm bid over $3 billion USD for Australia's Treasury Wine Estate, clearly seeing potential in the world's thirst for vino.  What's to be made of that?  I make my own wine.  Really.

Investment in precious metals can be a safe haven.  Gold and silver are pushing records highs, but copper, titanium and platinum have a significant market share as well. What about things you can't buy individually?  Partnerships in energy (oil, gas and coal; but not wind, solar or hydro) are available and are lucrative with high cash flows and very desirable tax benefits.  The "new energy" sources have proven unreliable and without any profit potential, so the world must stay with the reliable and vast existing resources. 

Collectibles are an investment as well, but do not meet the cash flow criterion.  And, government interference can render them essentially worthless.  Ivory is a prime example.  I have some very old pieces I've collected over the last five decades, and because of reactionary government policies to illegal elephant poaching in Africa, they have no value other than memorabilia.

So what's it all mean?  Invest in tangibles that produce sustainable and reliable cash flow.  Makes sense.  But as everything else, that advice is worth exactly what you paid for it.