Regarding the comment about TINA (There Is No Alternative, to buying stocks or bonds), I have to disagree. There are always alternatives to the securities markets. I could:
[see below]
Note that almost all these options are unavailable to institutional investors or billionaires. They really don't have an alternative. They are destined to bid up every bubble because they have a mandate and mechanistic rules, or because their scale is too big to pursue small, high-yielding projects.
Yes, some of these ideas have a lower expected value than the stock market's long-term past performance and some are illiquid. The point is there is always an alternative.
If anything, the time when people are reluctantly buying because they see no alternative is a sell signal. People wept about PE ratios in 1999 too, and were told valuation doesn't matter, just buy.
As we now know, instead of NASDAQ funds, they should have bought coastal real estate, education, or long-duration put options.
What I meant by "no alternative" is that there's no alternative that's not affected by an efficient market distributing low returns across all options. By "market" I don't mean just stocks but anything that produces a return on capital. People are chasing returns wherever they can get them, and it drives up the prices on pretty much everything sooner or later. Some of your options are good investments, but it's kind of hubristic to think you're going to use them to beat the system.
1) buy & rent out residential real estate
Rental property is definitely affected by low interest rates. If you search for "home prices" it looks like prices are already
overheating like stocks. And if it's high, rental property could just as easily have a correction as stocks like everybody
found out in 2007. Don't get me wrong, rental property can be a great investment or diversification. I own a rental house.
But if you believe in market efficiency, you can't use real estate to beat the market instead of just be the market.
2) invest in home improvements such as insulation
This can definitely produce good returns (A penny saved is a penny earned for sure). You can't put 30% of
your stash into it, though. It's also one of those things that's generally good no matter what the market is doing.
3) buy precious metals (essentially random return)
Buying metal is not an actual investment. Metals don't produce anything. Without an actual return it's just speculation.
4) sell options spreads and harvest time decay
Fancy, but still subject to the same market forces as everything else.
5) buy art / collectibles
Same as 3)
6) personal lending
Also another option but low interest rates are going to affect this as much as anything else. Plus I'd think you'd want a
good risk premium.
7) direct real estate investment sites
Essentially the same as 1) with a little more diversification
8) flip assets bought at a cash discount
This could be three things
- Investing time and/or money to fix it up.
- Charging what is basically a finder's fee.
- Speculating that somebody else will pay more than you will.
9) buy or build a small business
Yes, this is a really good alternative in a sense, and it's implicitly what the fed is trying to encourage you to do.
It's risky, though. There's a good chance your small business will flop. You need a pretty good chance of being wildly
successful to get your risk premium.
10) buy education, e.g. programming
Kind of, but it's more of a force multiplier on your labor than an investment. It also is probably not worth it from a strictly
financial sense if you're at or close to FIRE.
11) invest in timberland
Probably also good, but pretty similar to 1). Low mortgage rates and low returns elsewhere can drive this up.
12) subdivide semi-rural property
You can do well here, but also subject to the same market forces as 1). I'm also guessing it's pretty capital intensive, too.
13) patent some ideas
If you're putting any significant money/time into patenting the idea, you're risking the chance that nobody wants to pay to use it.
If you don't have to put much money/time in, you're selling the idea as a product. Definitely something worth doing, but not a way
to make money pay a return.
14) buy mineral rights
Same as 11)
15) short the market
I think most people would want a pretty good risk premium for this one. I'm definitely not going to consider this one an
alternative for me.
16) sit in cash, avoid a crash
I don't feel like rehashing this one. Sit in cash, erode your stash.
17) build / lease a billboard
Another form of real estate rental. See 1)
18) illegally subsidize a family member's term life insurance
Once again back to risk premiums.
19) buy TIPS
What's the interest rate on those right now?
20) buy a parking lot
huh? If you mean buying a pay lot, that's one more form of real estate rental. Same as 1)
21) buy a commercial building
Same as 1)
22) preventative maintenance on household systems, car
Same as 2)
23) buy LASIK eye surgery
This one's probably worth it, but it's not really a financial investment unless better vision makes you money somehow.
24) Pay down the mortgage
Depends on your rate or whether you even have one any more :)
Etc...
Shoot!
Some of those options aren't available to institional investors and billionaires, but a lot of them are. Then the ones that aren't probably are not going to work for a large chunk of stash.
With the 2000 crash, hindsight is 20/20. The market was already overheated years before 2000. If you had pulled out in 1995 for cash, you would have long missed the boat by the time the crash actually came. On top of that, a big difference between 2000 and now is, once again, risk premiums. If I remember correctly, stock yields went below bond yields in 2000. Bonds aren't giving 6% now, and real estate is quite a bit more expensive than then.
You might be able to find something better, but thinking so would be implying you had some advantage over several million people.