Investment Choices

The Case for owning Equities

         

         Oh no!  The end is near!  Or maybe not…I believe that most of you should purchase equities with your savings.  Gold, Real Estate, and Oil will always hold more value than currency.  If you have most your liquid assets in cash, you will lose the potential earnings of equity investments.  The federal tax system favors equity investment to cash investment.  The systemic risk of a market collapse from the debt crisis in Europe will not affect the remaining balance sheets of corporations in the US or the scarcity of gold, oil, and real estate. 

         When purchasing equities, you should purchase established indexes for gold such as GLD, big oil companies such as EXXON, CHEVRON, and BP, and established and profitable Real Estate Investment Trusts.  Big oil companies with solid balance sheets will remain profitable for a long time because oil becomes scarce with consumption.  Gold serves as a hedge against currency and stock market declines and historically has served as a benchmark for currency valuation.  Real Estate Investment Trusts hold large portfolios of real estate and pay out 90% of profits as dividends to share holders.  The REIT’s value will swing very quickly when the foreclosed houses on the market get bought up by investors; the bottom must be close, and you will never have a better time to buy in at a low.  Forget keeping cash and purchase equities.

         The federal tax system rewards investing in equities.  When you purchase a stock at a certain price and sell it for a capital gain, the tax rate is 15%.  The tax rate goes to 30% for interest on bonds, treasuries, CD’s, and regular interest payments.  In other words, equities let you take home more money.

         The situation in Europe frightens me and other investors due to increasing interest payments on sovereign debt in Italy, Spain, and Greece.  Those three indebted countries may not be able to keep paying the costs of running their government functions without severe cutting in spending and civil unrest resulting.  Austerity will make raising revenue more difficult.  These factors may cause US investment banks to write down more losses than they can afford and reignite a market panic.  Pricing these factors into equities still makes equities a great deal because the US banks have little exposure to the European sovereign debt, and Germany and France will spend the necessary amount of money to maintain their favorable trade advantage of a cheaper euro to bolster exports.

         You now have the facts of the current world economic situation.  Equities are cheap because of systemic risk in Europe.  Keeping money in cash leads to depreciation of purchasing power due to a depreciating dollar.  You must decide, but taking a risk may be more sensible than waiting for depreciation to eat away at your savings.