I don't generally give investment advice, because I am not really qualified to do so and I make enough mistakes with my own investments that it seems silly to give other people advice.
But these are extraordinary times, and I do want to pass on one general piece of advice: Be ready for inflation. If you are under forty, you probably don't even remember any real inflation, so you may need to seek advice as to how to handle it.
I just do not see how there is going to be any way to avoid a substantial uptick in inflation over the next couple of years. Crazy-large deficit spending, huge inflation of the money supply, absurdly low interest rates, massive government money-printing efforts, and government-mandated tilts in the balance of power between labor and management towards the unions can only add up to inflation,
Now, if we were really in the next Great Depression, as the Obama administration tried to tell us in its early weeks (mainly in order to pass pet legislation in a mood of total panic), then we might not see much immediate inflationary pressure. But I think most of us are realizing that the whole depression thing was over-sold. We are likely already on the first steps towards a recovery (if the Administration does not keep doing stupid stuff to kill it) and this recovery will become obvious by the third quarter (for their budget, the Obama administration is forecasting this now to be a milder-than-average recession). When the recovery starts, inflation is going to slam home hard and fast.
The smart money already knows this. That is why the government (as is the UK government) is having a hard time finding takers for long-term government bonds fixed at 4 or 5 percent. Such low rates could easily be under water after inflation.
So, find ways to hedge inflation. Here are some general ideas:
- If you need to borrow money, now is a great time if you can borrow long and fixed (as with 30-year mortgages). With high inflation, the amount you owe effectively goes down every year. Borrowers love inflation!
- Avoid buying long-term bonds at fixed rates like the plague. Again, you want to be issuing such bonds, not buying them.
- Consider various US government inflation-adjusted bonds, or shorter maturities on traditional bonds
- Equities tend to be a good inflation hedge. Revenues and earnings go up with inflation, so equity prices and dividends tend to as well. There will be, though, certain industries and companies that will not manage well in this environment.
- Gold is OK, but I have always thought of gold as dead value. Sure, it can hedge inflation, but it gives no real return. Commodity producer stocks (e.g. oil companies) may be a better bet.
- International stocks are really dicey in this kind of environment. Added to the underlying risk of investing in less developed markets is the currency question, which basically boils down to -- we know the US is screwing up its currency, but will other countries screw theirs up worse? If you think there is a country out there who is less likely to inflate their currency, by all means consider equities and bonds denominated in that currency. You get the underlying return plus an exchange rate boost (all things being equal, if the US has a lot of inflation and others don't, the value of the dollar will fall. Thus investment returns in, say, Euros will return more dollars in the future.)
These are just some ideas, and I am not positive they are all good ones. Talk to someone more knowledgeable than me, but whatever you do, I think you need to be planning for inflation.