The puzzle in 2014 and 2015: where to invest to make money investing if you can’t make money in stocks or bonds without taking undue risk? I’m not playing the role of cheerleader here; because finding where to invest money if stocks and bonds both get hit will be a challenge. This could happen, so let’s look at our options.For the past 30 years or so, investors both large and small could make money investing most of the time, if they simply invested in both stocks and bonds (about equal amounts in each). How will investors make money if both stocks and bonds are taken out of the equation? Let’s look at both how this could happen and where to invest if it does.In the late 1970s through the early 1980s investors did not make money investing in bonds or bond funds. In fact, losses of 40% to 50% were not uncommon in long-term bond funds. Why? Interest rates climbed – peaking in 1981. Since then rates have fallen, hitting record lows. Memorize this: you make money investing in bonds and bond funds when rates are falling. You lose money when rates climb. With interest rates threatening to go up in 2014, the question is where to invest money without taking on considerable risk.Since the early 1980s, stock losses have often been offset, in part, by the steady performance of bonds. Don’t expect this to happen if interest rates continue to climb in 2014 and beyond. Looking at stocks, you might make money investing in stocks going forward, but not without accepting considerable risk. Look at the stock market’s record since the year 2000: two brutal bear (down) markets produced 50% losses. Since the end of the last bear market (about 5 years ago) the stock market has since gone up over 150%. That begs the question: where to invest money when (or before) the next bear market hits.Believe it or not, the average investor has more latitude in terms of where to invest money than the giant investors (like pension funds and insurance companies) do. For example, a pension fund must make money investing (about 8% a year on average) in order to meet certain obligations. So… what are your choices if you decide to lighten up in stocks and bonds?Unlike some giant investors, you can play it safe with a large part of your money; and wait for future opportunities in both the stock market and bond market. You will hardly make money investing safely at current interest rates, but you shouldn’t lose money. Keep in mind that each of the last two bear markets in stocks produced losses of about 50% and lasted for less than two years. Then stocks rallied and went on to make all-time highs. When stocks get cheap, that’s where to invest money.Another option is to invest money in alternative investments like gold, natural resources like oil and natural gas, other commodities like copper and aluminum, or foreign investments while cutting back a bit on stocks and bonds. If you don’t know how or where to invest in these markets, look for stock mutual funds that specialize in these areas. Let them handle the investment details for you.If you want to be proactive, there is a third way to make money investing or to offset losses if or when stocks and/or bonds turn sour. Where to invest money to offset bond losses: an exchange traded fund like TBT (stock symbol) is designed to go up in value as bonds fall. Where to invest money to offset stock losses: inverse exchange traded funds (like stock symbol SDS) are designed to go up when the stock market falls. Both of these examples offer financial leverage of 2 to 1.The truth of the matter is that it is not always a given that you will make money investing. Frankly, I think that 2014 and 2015 could be a real challenge, and your first goal should be to avoid heavy losses. The answer to where to invest isn’t that simple when neither stocks nor bonds look attractive. At least now you know your options.
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