In a hypothetical conversation between an Investment Advisor (IA) and a Contrarian Advisor (DA), they present differing views on investment opportunities.
IA: These investments have minimal risk with returns significantly higher than the current inflation rate. By safely allocating funds into these investments, you can easily achieve over 5% returns.
DA: With inflation approaching a target of around 2% and signs of a slowdown in the labor market, the Federal Reserve seems prepared to cut rates in September. Chairman Jerome Powell stated, “We want to take action before any potential economic slowdown.” This implies that interest rates on these short-term investments may decrease.
IA: Over the past five years, the market value of long-term bonds has sharply declined due to rising interest rates to combat inflation, leading to bond price depreciation. However, if the Fed stimulates a cooling economy and interest rates begin to fall again, you can earn interest while benefiting from capital gains due to market price increases.
DA: If the Fed cuts rates prematurely and inflation resurfaces, the central bank would need to reverse this policy, causing long-term bond prices to fall again as interest rates rise.
IA: Passive index funds further elaborate on the importance of balancing and rebalancing investment portfolios:
“The importance of balancing and rebalancing an investment portfolio” – Investing in the overall market may have both gains and losses, but at least you receive the overall market returns, which are considered safe!
DA: Today, the concentration of major tech stocks is so high that if they were to eventually decline, it would lead to a significant downturn in the S&P 500 index.
IA: The “Big Seven” tech stocks have been soaring this year, showing strong momentum and high returns. It seems that we can expect these continuously rising stock prices to persist, especially driven by the new wave of artificial intelligence.
DA: The valuations of these stocks are so high that they may exaggerate future growth prospects. For example, while Nvidia’s AI semiconductor sales and profits have surged, products and services in artificial intelligence that companies like Amazon, Microsoft, and Apple aim to bring to the market may not be as profitable as anticipated due to limitations and issues with AI.
IA: We have seen stocks of companies like GameStop, Koss, and AMC surge in 2021 and this year. Although these stocks later retreated, capturing their popularity when it reignites can generate remarkable returns!
(Dank stocks refer to company stocks that experience drastic price fluctuations due to attention from online followers.)
DA: These companies lack a sound business model and could face bankruptcy if their funding chain breaks. So, why invest in assets without long-term viability?
IA: The U.S. stock market is indeed overvalued, which is why countries like India and Japan are attracting more investors as their stock prices are relatively more appealing.
DA: Most regions worldwide are heading towards a recession, and the U.S. seems to be the only country with a robust economy currently. However, indications suggest a cooling U.S. economy. Foreign stocks come with their own risks, with China’s government known for suppressing surging tech stocks like Alibaba. Other countries may face currency issues. Unless you’re an expert in investing in a specific country or region (such as Europe or the Asia-Pacific region), foreign investments carry higher risks compared to U.S. company investments.
IA: Real estate values only tend to rise over the long term since real estate is limited and often considered a “no-lose” investment.
DA: Commercial real estate is almost in a recession due to remote work causing high vacancy rates. The retail sector faces bankruptcies as the costs of physical stores often exceed those of online shopping on platforms like Amazon.
Residential real estate is stagnating. Limited housing supply has led to substantial increases in home prices and mortgage rates. Additionally, property taxes, maintenance fees, and utility costs are significantly higher. With the passing of the baby boomer generation, an abundance of their homes will flood the market. So, it’s best to wait for a while.
IA: As inflation erodes confidence in currency, countries, central banks, and individual investors have been purchasing more gold. Over the past few years, the spot gold price has risen from $1,700 to $2,400!
DA: Precious metals are speculative. While they have industrial uses and are used for making jewelry, their speculative nature means they do not pay dividends or interest, and returns depend entirely on popularity, enthusiasm, and increasing investor participation.
In conclusion, there’s no perfect investment choice. Your investments will depend on your age, risk aversion level, available risk capital, and most importantly, your personal outlook on these investments. Perhaps finding a good investment advisor to guide you through the complex investment choices and decisions you’ll face in the upcoming years would be beneficial.
Good luck!