“What to do with $100,000” is the cover line from this month’s issue of Smart Money magazine. What do the folks at Smart Money think you should do?
“Buy a second home…invest in comic book art?” It begins with questions. And then offers to help us make the right decisions. So far, so good.
But, uh oh…what’s this? The magazine tells us that buying real estate can be ‘fruitful’ – “even now.” Smart Money explains that if we put down 10% on a property…and then the price goes up 10%…we’ve made a 100% gain. Wow. Sounds pretty good. But what if the price goes down 10%? You’d be wiped out…but the magazine doesn’t even mention it. Nor is there even a hint that property prices might be in a long-term, substantial decline. We don’t know one way or another, but it is at least worth considering. If experts such as Robert Shiller are correct – an investor could put up 10% each year for the next three years – and be wiped out each time.
As for stock market advice, the smartest thing the magazine comes up with is buying shares in Warren Buffett’s Berkshire Hathaway. True, it is like a mutual fund run by the world’s greatest investor – who doesn’t even charge a fee. But it is also true that the fund is so huge that even its own manager is warning investors that past performance is extremely unlikely to be repeated. It is also a track record built during the greatest bull market the world has ever seen…probably never to be repeated…and one built in America during a period that was probably the apogee of the U.S. financial empire. Again, no one knows what the future will bring – but it might be worth mentioning that investments in Berkshire are no sure thing.
Smart Money suggests an unconventional approach too – use some of the money to retool yourself. It mentions a couple who decided that they wanted to give up their jobs and go into the wine business. How they were going to get into the wine business with $100,000, we can’t imagine, but they wisely thought they should get some experience first. So get this, they spent THREE DAYS in a commercial winery doing “cellar work,” moving barrels around, and so forth, and HOURS talking to the owner. What? How could they possibly learn anything useful in 3 days and a few hours? The wine business is one of the most competitive and complex in the world. Maybe they’ll get lucky, but it if they get killed we’d rule it a suicide.
What else does Smart Money think you should do with $100,000? Well, you might want to “roll the dice” on some “emerging genres” in the art world, for example. Or you might want to fix up your house.
Yes, you might want to do these things…but don’t confuse these things with using money to make money. When you put down new carpeting, you’re not making an investment. Even if you think you’re going to sell the place, the carpet is a gamble, not an investment. So is buying comic book art. Maybe it will go up…maybe it won’t. Buying it is hardly a smart financial move for someone with $100,000. In fact, almost all Smart Money ‘s advice seems dumb to us. Whether you fix up your house, launch yourself into a new career, or buy a house, chances are very good that you will have less money a year from now than you do today. Even buying Buffett’s shares will probably be a losing proposition in the year ahead – since the entire stock market seems on a downward course.
What should you do instead? Gold and cash…cash and gold…that is all ye know in life…and all ye need to know. For now.
The Daily Reckoning Australia