Investment question

[duang]

In what is an unfortunately a rare circumstance for me, I find myself with a bit of money to play with. Not much, about $20 000.00. Never played the market, but I'm thinking of doing something a bit more than just plunking it into a guaranteed investment.

If you were going to put out some money on a riskier investment today, what would you choose? If we are coming out of the recession, it seems to me that oil is a really good bet. Property?

Opinions? Please...nothing along the lines of the "open an MP" type suggestions.

With a holding period of as little as two years any equity investment is speculative to some degree.

If you want to swing for the fences then just pick one or two good ideas and roll the dice. You could hedge your bets by diversifying using ETF's or mutual funds: this would reduce the range of possible outcomes on both the higher and lower ranges. Any individual asset [stock or commodity] is many times riskier than a diversified portfolio no matter how many sheep bleat how guaranteed safe any single investment is. Follow the herd and you get led to slaughter eventually.

There's very good advice here to look at your personal situation with respect to debt, liquidity and what kinds of accounts to use to reach your goals. Do the research or get someone to advise you.

For what it's worth, I have my money split between emerging markets and resource mutual funds but my holding period is long and my risk tolerance is very high [and I'm also in the industry].

D.

 

[duang]

Willie, you almost have sold on TRP and existance of such thing as safe stocks. The reason I am asking is I have about $200K in cash to invest. But the thought of catching a "black swan" frightens me. I also thought of diversification, but if you look at DJIA in the past 10 years, it has not advanced a bit. If you bought DJIA in Oct 2000, you would have lost 30% last March, and just breaking even now. Oh and DJ consists of only blue chip stocks - the kind of stocks all analysts think are safe, quality, and most are dividend paying... but still they are not immune to the market volatility. So there goes the idea of "long term" investing. If 10 years is not long term enough what is?

Don't let the fear of an abnormal event paralyze you. If you worried about getting hit by lightning you might never leave your house. Just don't run around in a storm with a golf club over your head. Same with investing: don't overconcentrate and invest appropriately for your risk tolerance and holding period.

Any money you might need in the next 3-5 years should have lots of government bonds, corporate bonds and some income producing trusts and stocks. Money not needed for at least 5 years can go into diversified equities subject to your risk tolerances and goals. Diversify by currency, asset class and geography in all cases to be prudent.

As someone already pointed out, the DJI is not a diversified index but in any case, most global indices have been very weak over the last ten years [a lot of that due to the appreciating Canadian dollar]. That doesn't mean that stocks are poor investments unless you think the next ten years will be the same. In fact, looking at the 50, 100 and 200 years of stock investing history many might see an opportunity going forward. Many areas around the world will have high growth [e.g. emerging markets] in the years ahead so some exposure will help you grow ahead of inflation and taxes.

If you are upset that the DJI fell and took a year or two to get back then that might be a good clue that you should be careful about how much you commit to equities since they rise and fall continually. Luckily, people don't think the same way about real estate since it took 10 years for housing prices to recover in Toronto after the correction of the early nineties yet most people consider real estate safer than the stock markets.

Diversify and be prudent about your risk tolerance and holding period and you'll be fine.

D.