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Better capital preservation investment ideas?

Discussion in 'Business, Careers & Education' started by Shoe City Thinker, Feb 2, 2011.

  1. Shoe City Thinker

    Shoe City Thinker Senior member

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    I'm uncertain if bonds (corp and gov) are the best investments for capital preservation. Especially if your time horizon is less than 5 years (my case here). I've been tracking bond ETFs for a month and most are money losers. What would be a good capital preserving investment that has some opportunity for upside?
     
  2. stant62

    stant62 Senior member

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    MLPs and REITs - I think most bonds will be losers over the next couple of years unless you hold to maturity. The exception to this rule are munis because of the current negative sentiment, which are causing them to be traded at a discount.
     
  3. Sunnydale

    Sunnydale Senior member

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    Yeah, I know what you mean, with the possibilities of defaults and inflation, long term bonds don't look attractive. I enjoy some of the suggestions mentioned by the Weiss Group. They have a free newsletter that I read. Of late they have been talked about getting out of bonds into some vehicle that is safer. Todays newsletter about inflation and investing: What Exactly Is the Fed Waiting for Again? http://www.moneyandmarkets.com/what-...42588?FIELD9=3
     
  4. Shoe City Thinker

    Shoe City Thinker Senior member

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    Opinions on precious metals and petroleum?
     
  5. Hannerhan

    Hannerhan Senior member

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    Maybe muni's are trading at a discount because people realize that government debt is unsustainable?
     
  6. fairholme_wannabe

    fairholme_wannabe Senior member

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    Blue chips with dividends, and you could write out-of-the-money covered calls.

    Example: MSFT

    Divi yield of 2.30%. Right now you could sell the March 29 calls for $0.25. You'd earn a little less than 1% on the call, and still retain 5% upside in the equity. Month after month, you could scalp quite a bit of premium out of these, even with implied volatility being really low right now relative to history. The disadvantage obviously being asymmetric market exposure--you're pretty much exposed all the way down, but only 5% of the way up.
     
  7. pscolari

    pscolari Senior member

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    I'm uncertain if bonds (corp and gov) are the best investments for capital preservation. Especially if your time horizon is less than 5 years (my case here). I've been tracking bond ETFs for a month and most are money losers. What would be a good capital preserving investment that has some opportunity for upside?

    You are on the right track. Absent of access to Stable Value Funds which are pretty much drying up these days, most institutions are looking at putting assets in a short term gov/credit type vehicle these days. Do not chase yield and keep duration short.
     
  8. Crane's

    Crane's Senior member

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    Opinions on precious metals and petroleum?
    Petroleum yeah. Precious metals aren't something you want to get into right now. If the prices come down significantly though then you may want to look into it.
     
  9. Pezzaturra

    Pezzaturra Senior member

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    MLPs and REITs - I think most bonds will be losers over the next couple of years unless you hold to maturity. The exception to this rule are munis because of the current negative sentiment, which are causing them to be traded at a discount.

    REITS = lol If you want to give your money away pick those that are full of commercial RE crap.
     
  10. Pezzaturra

    Pezzaturra Senior member

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    Opinions on precious metals and petroleum?
    Oil yes. Gold and silver, only if you have strong evidence that Inidians and Chinese will keep buying that useless shit in a future. Bonds? Let me think about it: would I invest into debt of the bankrupt government?
     
  11. Hannerhan

    Hannerhan Senior member

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    Oil yes. Gold and silver, only if you have strong evidence that Inidians and Chinese will keep buying that useless shit in a future.

    Bonds? Let me think about it: would I invest into debt of the bankrupt government?


    And if the governments go bankrupt, the currencies would be destroyed. And how do you think gold and silver look in that scenario?
     
  12. mkarim

    mkarim Senior member

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    Oil yes. Gold and silver, only if you have strong evidence that Inidians and Chinese will keep buying that useless shit in a future.

    Gold, and to some extent silver, is part of their culture.
     
  13. sdb5057

    sdb5057 Member

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    Bonds are a stupid idea when inflation is rearing it's head.

    Commodities and land. 2 of the best options.
     
  14. mkarim

    mkarim Senior member

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    Commodities and land. 2 of the best options.

    Residential real estate in desirable areas?
     
  15. sdb5057

    sdb5057 Member

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    Sure. People need to live, and larger cities tend to survive longer than small ones in terms of economic output and adaptation.

    Farmland is good too.

    I am going to be quite honest. I am a real estate agent in NYC, and I worked with my family doing real estate in Florida... Florida got CRUSHED and is still in a huge pit of death.

    NYC is taking this like a champ, and rents are getting back to normal. I started last year here and people used to moan and cry about $2,000/month for a 2 bed... now people are dropping 3k+ on 1 bedrooms and a full broker commission (70% of the time instead of 10% from about 3 months ago)...

    However, I would put off buying at low interest rates unless you are putting very little equity in (still cheaper than renting anyways).

    Scenario 1:
    Inflation Double Dip: Stock prices fall(fast inflation kills margins!), Land/dollar denominated goods spike up, bond holders get KILLED.
    Buy now before inflation accelerates.

    Forced to stem inflation, interest rates will have to rise, housing prices theoretically have to fall in order to stabilize the buying power of the people looking to purchase.... Plan to sell the house you bought before the interest rates get bumped up too high, but take advantage of the inflation hedge. When the high rates finally kick in after a few months, whoever is using ARMS or short term debt as financing will have to default coupled with a drop in buyer demand due to increased mortgage rates....there is a lag time of a few months that varies in which to make a few $ or just break even on an inflation adjusted basis. You will want to get out before that shock happens, and jump back in the second it actually does happen. There will be a large market "Correction" causing prices to fall pretty drastically on a nominal basis but it will correct itself as demand recovers (even at 15% interest, a $200k house going for 70k is a good deal! Get in at the 70k and just hold it. Buy it outright with cash or use a mortgage to multiply your investment. Why buy 1 70k house that was going for 200k when you can get 10 of them for the same money? [​IMG]

    Mortgage rates at this time: 10-12%

    If you do this right, you get to buy a new home for cheaper and take advantage of the tax deduction from mortgage interest. You basically pay the same or less if you are in a higher tax bracket, but people who can barely afford the payments (pre tax) wont be able to have that advantage. This would then be a good time to rent out the home you just bought if you have a backup... or just sit on it and watch it appreciate.

    Scenario 2: Economy recovers massively, take advantage of that price appreciation over the next 10 years. Even when the interest rates jump up to normalize the economy, your home will recover the full value of it's original purchase price, if not exceed it drastically until the next downturn! Try and get an assumable mortgage, which will help you hold onto the price of your house even if interest rates put a damper on them generally. People will pay the premium to assume a 5% mortgage on a house when interest rates are 10% [​IMG]




    I personally have 40% of my assets in gold or silver, the rest I spend as soon as possible (ON CLOTHES/CARS/WOMEN/DRINK/FOOD!) because if inflation picks up, I rather have items than the paper used to buy them. IF inflation doesn't happen, I will most likely make an increased salary to compensate for any losses anyways [​IMG]


    Btw: I studied finance and commerical real estate in college.
     
  16. boo

    boo Senior member

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    I think OP's language is a bit confusing. You either get capital preservation or opportunity for upside, you don't get both. To me, capital preservation implies nothing riskier than short-term bond funds. Maybe you can include a small allocation to "conservative" bank loan funds (SAMBX comes to mind) for a bit more yield that floats with interest rates. Note I put conservative in quotes since the paper is issued by non-investment grade entities, but they're safer than junk bonds since there's collateral (assuming the PM is doing his job) to cover defaults.

    I suppose there's nothing wrong with real estate, commodities, or oil, but I don't see any of them consistent with a goal of "capital preservation", and especially not if they represent the bulk of your investment.
     
  17. SkinnyGoomba

    SkinnyGoomba Senior member

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  18. gdl203

    gdl203 Senior member Dubiously Honored Affiliate Vendor

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    I suppose there's nothing wrong with real estate, commodities, or oil, but I don't see any of them consistent with a goal of "capital preservation"

    +1

    thread brings the lulz. Invest in oil for capital preservation [​IMG] What about that penny stock I received an email about at 3am last night?
     
  19. Bhowie

    Bhowie Senior member

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    Running the trap house.
    +1

    thread brings the lulz. Invest in oil for capital preservation [​IMG] What about that penny stock I received an email about at 3am last night?


    OooOOoooh please forward, kthx

    I find that stock tips on the internet are usually about as useful as weight lifting advice from the same source
     
  20. Souper

    Souper Senior member

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    market neutral funds, merger arbitrage / event driven with correlations of under .5
     

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