Depending on your investment goals, you know there is a great deal of work that goes into your final decision. For most, it comes down to the goal you want to realize based on how much money you have to invest, either in one lump sum or capital you invest on a periodic basis like every month or every paycheck. Then it is investigating investment opportunities and weighing different platforms, amount of money needed, expected return, risk, etc. While we all spend time on these “micro” aspects of our own investment portfolio, we also have to keep in mind the “macro” factors we should always be aware of regarding investments like the stock market, such as:
Globalization. Globalization may have similar effects and has impacted nearly every aspect of modern life for the simple fact of the overwhelming number of goods we buy globally. Your personal investment can only be affected one way, and that’s a loss in value. In theory, globalization provides a net benefit to individual economies around the world, and it’s been mutually beneficial. The US stock market has had a much greater benefit over the last thirty years. This will change tide over the next thirty years because factors such as industrial growth, higher returns, and new, shiny opportunities elsewhere will attract many international investors into high-growth countries like China, South Africa, and India. This will cause millions of investors to pull out of the US.
Interest Rates. With current interest rates at an all-time low, the Federal Reserve will likely look to prompt inflation to get itself out of its massive debt. When interest rates eventually rise, projected earnings for most companies will fall, and so will stocks. This typically results in losses within your portfolio. Without many options to recover, how does the Federal Reserve provide opportunities to investors? If unavailable, I would suspect movement of funds into other investment options.
Retirement. Currently, an enormous amount of retirement money is in the stock market through 401(k) retirement plans and pension plans, which comprise the largest groups of investors in public securities. This group often feels as if they don’t have any options but the stock market. Baby boomers will take out most of their retirement savings over the next thirty years, sucking billions of investments right out of this traditional savings model. This will create continued volatility and instability in the market. Also, as people age, you can hear the brokers screaming about asset allocation, diversification, and shifting away from equities as they get closer to retirement, causing a further step away from traditional savings models.
Taxes. There are current efforts to establish legislation that will allow people to invest capital gains in opportunity zones in the US, ultimately to defer those gains and eventually not to have to pay them at all if delayed for long enough. We all know that cutting taxes stimulates economic growth. However, since there is a massive limitation on our ability to lower rates any further, we don’t really have this option available to us. More than likely, we will eventually see a rise in taxes on capital gains due to the climb in national debt, especially on high-net individuals who control most of the money in the market. If this happens, stock gains will look less favorable, which will be another good reason for people to rebalance their portfolio into real estate.
Workforce. If you are in finance, technology, or real estate, your future income and job security are probably tied directly to the stock market. So, if you do invest in the stock market, the key to your success is riding it out, which will be difficult for the everyday American. It will be much more challenging to ride it out for the long haul if you are in a profession that’s success is directly correlated to the stock market. You’ll have extra income when the market is up, and you’ll need income when the market is down. In this scenario, you won’t have advantage of the long-term market trends, and others will outgain you accordingly, leaving you ultimately with no control.
Technology. In today’s world, public investors have fewer opportunities to invest early on in large technology companies like Facebook, Google, and Apple, all of which infuse money into the market through initial public offerings (IPOs). These companies have been successful with venture capital benefits to sustain the initial growth periods. In the dot-com boom, public investors capitalized and flocked to the market. However, since companies are now more sustainable than ever, they hold out and take on less money from capitalization.
The previous list is expansive but not complete. A number of additional reasons exist for why investors face challenging times ahead in the stock market. It is certainly not as safe and predictable as your broker would like for you to think. The issues just discussed should at least scratch the surface of the concern and outline why there are challenges should you continue to focus solely on investing in the market. A number of other great opportunities are out there, and as I am sure you can tell, real estate is my preference.
This is one of a series of articles based on my book, Modern Wealth Building Formula – How to Master Real Estate Investing. I have a passion for helping others secure their future. As the professionals say, “The best time to start is now!” Please follow me as I continue to give you insight and strategies for achieving your retirement dreams. We can do this together!