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Saturday, August 20, 2011

The Best Investment?

Keynes:  The market can stay irrational longer than you can stay solvent.

To see how various investments have fared is easy.  Just look in the rear view mirror.  In fact, the "rear view mirror" approach is a very popular investment approach.  What isn't generally appreciated is that it often ends badly.  Ask those that jumped on the bubble in 2000.

Let's consider some year-to-date returns:

TLT (longer term U.S. Treasury exchange traded fund): +20.79%
GLD (gold exchange traded fund): +29.02%
INTC (intel common stock):  -6.03%

Performance numbers are through 8/19 and were obtained from Morningstar.

The rear view mirror investor has it easy.  Go 50% TLT and 50% GLD.  This portfolio captures the rampant fear in the marketplace based on the dysfunction of global governments and the rise of anger over the continuing request for responsible parties to bail out the irresponsible.  This fear is what has driven the price of gold sharply higher and the yield on longer Treasuries to unprecedentedly low levels.

But what lies ahead?

Consider that the yield on the 10-year U.S. Treasury note is close to 2%. 2%!  Ten years!  Worth mulling over.  With governments having to borrow record amounts as far as the eye can see and rumblings about the possible inflation impact, some  hard reflection would seem to be in order.

Put against this the 4% dividend yield on Intel common stock and the liklihood that the dividend will be increased consistently over the next 10 years.  Furthermore, consider that the whole world wants every bit of personalized entertainment and information at its fingettips via its cell phone.

Of the 3 investment choices, which do you think will have the best performance over the next 6 months, 1 year, 5 years? 

Disclosure:  The above is for informational purposes only.  Investors need to do their own research and or consult a professional advisor before making investment decisions.

1 comment:

  1. Good point Robert! People are willing to take the lower guranteed dividend, over INTC's higher but un guaranteed dividend, even though the likelihood of Intel decreasing or stopping dividends is very remote.

    But my logic has to be tossed out the window when you consider Gold going up!!