The Money Game and Real Estate
Tuesday, April 25th, 2006
By Michael Lombardi, MBA for Profit Confidential
Over time, capital moves to the place which offers it the highest and safest return. Simply, money moves to investments that offer the highest and lowest risk return. Often, when the return gets too risky, capital moves on to new pastures.
In the 1980s, when inflation came under control and interest rates started to decline, money moved into the stock market from precious metals. A bull market in stocks started in the early 1980s and continued until early 2000. The euphoria hit in the stock market in 1999 when investors jumped on the proverbial tech bandwagon. The rest is now history.
Tech stocks topped out in late 1999 and early 2000 and money (or should I say capital) moved out of stocks. The NASDAQ is still down 50% from its 1999 price high–the effect of what happens when capital leaves an investment in exodus.
With interest rates moving low and lower, capital moved out of stocks in 2000 and into real estate. And since 2000, we can safely say most real estate has about doubled in price. Now, as interest rates have risen and property prices have risen, overbuilding has taken place. As evidenced by what the new-home builder stocks and the real estate market itself is telling us, real estate is not in big demand like it used to be.
Where’s money moving to now?
There’s no doubt capital is moving into precious metals. Sure, one can argue that precious metals don’t offer dividends or interest payments to investors, but money always moves to the highest and safest returns… and right now those returns are in the metals in the form of capital gains from higher prices and security.
Investors all over the world became weary of the U.S. dollar. They asked themselves: What’s the safe haven for money now? And, they’ve found that haven in the precious metals. Since 2001, I’ve been telling my readers or anyone who would listen, to get into precious metals. I still believe it’s not too late either.
But, just as important, as investors, we must realize that capital is now lukewarm on real estate–it’s not the best money game anymore. Like the route gold took into the 1990s when metal prices plummeted because there was no demand… like the path stocks took after the 1999-2000 bubble… real estate will eventually follow the same path down in price. History proves this is how the money game works.
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Tags: bull market, precious metals, real estate market, stock market, U.S. dollar
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Michael bought his first stock when he was 17 years old. He quickly saw $2,000 of savings from summer jobs turn into $1,000. Determined not to lose money again on a stock, Michael started researching the market intensely, reading every book he could find on the topic and taking every course he could afford. It didn’t take long for Michael to start making money with stocks, and that led Michael to launch a newsletter on the stock market. Today, Michael only employs the top market analysts and editors. Some of our recommendations have posted gains in excess of 500%! Michael has authored and published over one thousand articles on investment and money management. Along the way to building Lombardi Publishing Corporation, now with over one million customers in 141 countries, Michael became an active investor in real estate, art, precious metals and various businesses. Readers of the daily Profit Confidential e-letter are offered the benefit of the expertise Michael has gained in these sectors. Michael believes in successful stock picking as an important wealth accumulation tool. Married with two children, Michael received his Chartered Financial Planner designation from the Financial Planners Standards Council of Canada and his MBA from the Graduate Business School, Heriot-Watt University, Edinburgh, Scotland.Follow Michael and the latest from Profit Confidential on Twitter
