Where Would You Invest a Million Dollars?

Since 1992, I have had a goal of becoming a millionaire.   I am on track to reach my goal before retirement age, but the stock market certainly hasn’t been cooperating lately.  Even if I do save up a million dollars, I don’t think the return from those investments are going to yield the lifestyle I envisioned back in the ’90s.  So, I am reaching out to bloggers and readers to ask, where would you invest a million dollars?  Here is what I see happening with investments.

The Stock Market is Rigged

Invest in our Stocks

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The stock market is definitely rigged.  I have said it here before on this blog and I will say it again.  Between the super-fast trading networks, dark pools, rampant insider trading and the massive amount of leverage from derivatives, the markets are being manipulated and small investors are getting taken.  It doesn’t matter whether you have a 401K, mutual funds or a brokerage account, you don’t get a fair shot.

The big boys are getting away with murder and regulators can’t seem to reel them in.  Even worse, there is so much corruption and influence peddling between Wall Street and Washington, people are literally buying outcomes in the market.  Congress is along for the ride, trading on privileged information that isn’t available to the public.  They are creating laws and making policy decisions on the companies they own stock in.

Check out what’s happening in the financial news right now.

  • Members of Congress are accused of insider trading, yet they seem to be immune to action from the SEC.  Meanwhile, others go to jail for this.
  • MF Global collapsed in October with former U.S. Senator Jon Corzine at the helm.  Investors may have lost between $600 million and $1.2 billion.
  • Citigroup’s proposed $285 million settlement with the SEC was rejected by a judge for being too lenient.  Investors lost over $700 million on the deal.
  • J.P. Morgan was recently fined 33 million pounds for not properly separating an average of $8.6 billion of their client’s funds from their own.

Sources: Business Week, USA Today, Huffington Post

Housing is Still Overvalued

Real estate is traditionally a good hedge against inflation and a great place to generate income.  But, it’s still overvalued where I live and likely to drop some more.  I base my guesstimate on the fact that real wages have stagnated and it’s way cheaper to rent in many areas.  It’s virtually impossible to buy a property here and rent it out for even close to break-even.  I could buy somewhere with lower housing costs, but I don’t want the hassle and expense of being a long-distance landlord.  I would give my left eye to have a nice little triplex at the beach, but it’s an expensive proposition.

Other problems with real estate are that it is highly leveraged and illiquid.  It requires a big down-payment, a lot of debt and massive liability.  If the tenants stop paying or they trash the place, you are out a lot of money.  If someone gets hurt on your property, you are getting sued.  The laws in my state are very lenient on deadbeat tenants.  Besides, my goal is to work less and enjoy life more.  Investment properties are a lot of work.

Precious Metals are Sky High

I will be the first to admit that I completely missed the boat on gold, silver and other precious metals.  I have seen them do so poorly during my lifetime that I wrote them off as horrible investments.  I was very wrong, at least for the past couple of years.  Precious metals have outpaced most other investments, by a long-shot.  The truth is that precious metals have done so well mostly because currencies have done so poorly.  If you compare gold prices to the true U.S. rate of inflation (based on the 1990 CPI), it hasn’t really gained at all.

The past means little to an investor.  It’s the future that really matters.  What are the future prospects for precious metals?  Will the favorable trends continue for precious metals?  Or, will they crash and languish for decades, like they did in the ’80s?  Only time will tell.  I’m not so sure I want to bet a big portion of my future on shiny metals.  I would prefer an investment that actually provides a return based on income.  Precious metals are only a store of value.

Bonds & CDs have Low Yields

I have shied away from bonds because the interest rates are artificially low.  So, the yields on bonds are artificially low, especially considering the risk.  If the interest rates shoot up for any reason, it would greatly devalue most bonds.  People think it won’t happen, but it just happened in Italy and it could easily happen here.  That’s a lot of reasons not to like bonds.  Even the Bond King, Bill Gross from Pimco, is bearish on bonds right now.  They aren’t the safe haven for investors they once were.

Deposit investments, such as Money Markets and CDs, have horrible rates of returns.  So do U.S. Treasury bonds.  It’s almost as if they know investors have nowhere else to go and they are taking advantage.  For me, any investment that yields less than the true rate of inflation is a guaranteed money loser.  And, the risk is higher than people think.  Banks weren’t far from a massive collapse in 2008 and they aren’t that healthy now.  The U.S. government is in even worse shape and it deserved to be downgraded by S&P.

Click here to start saving with ING Direct!

The Bottom Line

The bottom line is that there aren’t many attractive investment opportunities right now.  There is a minefield of risks and a dismal return.  If anyone knows of a sound investment please let me know, because I don’t see any.

“The investor of today does not profit from yesterday’s growth.”

Warren Buffett – Billionaire Investor

Recommended Reading

Brip Blap – Thinking Big About Investing
Financial Samurai – Are the Bull Markets Back?
Squirrelers – Home Country Bias and Investing in What you Know

This post was featured on the Carnival of Personal Finance over at 20 and Engaged.  If you aren’t familiar with the Carnival of Personal Finance, you need to check it out.  It’s full of fascinating stories and great advice.

35 comments to Where Would You Invest a Million Dollars?

  • Thanks for the mention in your recommended reading.

    As for your comments above on real estate, I think you’re right on it being overvalued. In my area, I see homes still slowly dropping in price based on periodic checks. Some have been on the market for a long time it seems. It’s interesting how a low interest rate environment (compared to historical figures, anyway) hasn’t kickstarted home prices.
    Squirrelers recently posted..Sometimes the Best Things in Life are Actually FreeMy Profile

    • I can’t remember the exact ratio, but housing prices to family income is still historically high, even after the crash. The low interest rates and government stimulous can’t make up for the fact people aren’t making the income. My friend, who walked away from his house, told me that a lot of people have trashed credit and can’t qualify, despite their incomes. I think he’s right.

      Where I live houses are still going for well over $400K, which means a couple has to be making close to six figures to qualify. Most young couples aren’t making that kind of money, even in Orange County.
      Bret recently posted..What if Everything you Know about Money is Wrong?My Profile

  • Bret,

    I know you’ll like this article. Pretty much gets at your #1. That said, the stock market, with all of its inefficiencies, might be better than some of the other places.

    The top investment, if you’ve got time to spare? Probably starting a business. Otherwise you’re probably picking between ‘least worst’ options…
    PKamp3 recently posted..The Male-Female Unemployment GapMy Profile

    • Great article Paul.

      I agree that small investors do poorly when picking their own stocks, but private equity firms scare me. They are kind of like hedge funds, where you lose visibility and control of your funds. What MF Global, LTCM and other meltdowns have shown me is that they are taking a lot of risk to get those returns. I heard MF Global was leveraged out at 44:1. It’s like picking up dollars in front of a bulldozer.

      Starting a business (or buying one) is a great investment idea. Not only can it gain in value, it provides income, which is what I seek. Nowdays, you have much lower startup costs and overhead. Especially, if you have an information business with a virtual structure. Thanks for the tip.
      Bret recently posted..Where Would You Invest a Million Dollars?My Profile

  • Gregg W

    I’ve been investing at Lending Club for a couple of years now. The yields are pretty reasonable and I’ve received about 8% annually even with a few borrower defaults. Recently, I moved my old 401k over to them as well since I have watched my retirement money lose more than 30% these past few years. It may be worth checking out if you aren’t looking for 10%+ annual growth.

  • To me, the strongest problems are regulations that BENEFIT the rentiers and the political class, at the expense of the productive class. A lack of regulations except for market-driven regulations, and a society based on contract law would be far better than the grossly distorted marketplace with bailouts, subsidies, and special political privileges that we have today.
    Financial God recently posted..Carrier IQ and the Erosion of Our PrivacyMy Profile

    • Regulation is always a controversial subject. But, I think corruption is a bigger problem. Right now, people with deep pockets can buy an outcome in our political system and that is very wrong. It’s the reason the bailouts and subsidies are taking place.
      Bret recently posted..Money Fail: Lenders of Last ResortMy Profile

  • Yeah, Bret. I’m definitely with Paul on this one… I think the best place to invest $1 million is in your own business. It allows you to take destiny into your own hands and out of the hands of the capricious markets.
    Len Penzo recently posted..100 Words On: How to Increase the Odds of Booking an On-Time FlightMy Profile

    • It’s funny Len, when I wrote this post I wasn’t even thinking of a business as an investment, even though I own one. I am definitely counting on business income in the future, but I also want to diversify with income producing investments. I definitely don’t like being at the mercy of the markets.
      Bret recently posted..Where Would You Invest a Million Dollars?My Profile

  • I have a different way of looking at CDs and other cash-like investments, Bret.

    Say that you get a zero return on an investment for a few years. Is that bad? Most people think so. I do not.

    We are living today in a period of transition for our economy. If we do not solve our problems, the ship is going down. In that event, your investment return is the least of your worries. So a zero return is fine.

    The other possibility is that we will survive this crisis in confidence in our economic and political system and come roaring back stronger than ever. If that happens, the returns available in coming years are going to be amazing, 15 percent a year or so.

    Earning zero for a few years so that you will retain the capital you will need to earn 15 percent a year for a good number of years into the future sounds like an outstanding deal to me.

    People have the idea that investment returns should always be good. It just doesn’t work like that. Returns are always poor in the years following a huge bull market. We just have to accept that this economic crisis is something we have chosen for ourselves and make the best of it.

    Rob Bennett recently posted..Beyond Buy-and-Hold #68 — How Our Stock Addiction Grew Gradually Worse Over TimeMy Profile

    • Thanks for chiming in Rob.

      I am painfully familliar with the concept of earning zero, or in the case of the stock market, the concept of losing 30%. I accept a lot more volatility than I recommend for others, but I have been investing for a long time and have a high tolerance for risk. Sure, I would love to hit 15% like many years in the 80s and 90s, but I’d settle for a steady 8-10% right now.

      As for investing in CDs and money markets, I still consider it a guranteed money loser. I would rather take my chances with the ups-and-downs in stocks than to lose 4% to inflation every year. I understand the concept of waiting out the markets, then getting back in, but I think now IS the time to be in. PE ratios are very low historically and unless the economy tanks, there should be some great profits. Now, if we could only keep the politicians, hedge funds and investment banks from scamming everyone.
      Bret recently posted..What if Everything you Know about Money is Wrong?My Profile

  • @Bret
    This post brings to mind many questions. With regards to real estate and dividend-paying paper assets, wouldn’t the goal be cash flow 1st and appreciation 2nd. If so, unless you think that these vehicles are going to implode, does it matter substantially if they are overvalued temporarily? In other words, while I’m not suggesting that you buy now, as you invest in such investments over a long-term wouldn’t you be able to take advantage of dollar cost averaging thereby diminishing the negative implications of buying higher than desirable? Also, does Bill Gross really think most bonds are too unstable to invest in or just overvalued? Lastly, I personally would have a diversified strategy including an income-producing business.
    Roshawn @ Watson Inc recently posted..4 Things To Stop Doing With Your FinancesMy Profile

    • I think the answers to most of your questions have to do with the timeline Shawn. For the past 25 years, I have only been interested in growth and reinvested all the dividends and capital gains. Now that my kids are adults and my house is almost paid off, I am starting think more about the cash flow. Five years from now, if I could find $3-5K in monthly cash flow, I might be blogging from the beach and skipping the 9-5.

      Even if I put some big down payments on real estate, I wouldn’t see good cash flow for at least a decade. And the libailities are huge. Dividend stocks are a sound idea and I would’t mind the value going up and down. A million invested in 5% dividend stocks would yield $50K per year, taxed at 15%.

      Bonds are the traditional route for income, but there are way too many negatives right now. I wish I had a link to the Bill Gross article. There’s no way I’m touching treasuries or munis right now. The public sector is a disaster and bankruptcies are coming. I may consider corporate bonds, but look what just happened with GM and American Airlines. They just shed the investors and keep all of the assets. A couple months later, they are selling new stock and bonds. It’s not like you own part of the company. You own worthless paper.

      The business seems like the best idea and it’s the one I’m working on the hardest. But I’d like to get my money working for me too.
      Bret recently posted..Money Fail: Lenders of Last ResortMy Profile

  • “The bottom line is that there aren’t many attractive investment opportunities right now. There is a minefield of risks and a dismal return.”

    I agree; however life is without risk. If I had 1 million I would buy a franchise. For example, here in Canada the best performing franchise is Subway and Tim Hortons (think coffee shop)

    I would open a coffee shop in a college campus, THAT business always have customers. Heh.
    James Felon recently posted..Jobs For Felons – Top 5 Jobs For 2012My Profile

    • Thanks for stopping by James.

      Having been up in Toronto a number of times on business, I’m familliar with Tim Hortons.

      A franchise is a great investment idea, providing the buyer gets a solid franchise in a good location. I know a number of people who have started them and most built up a good healthy businesses.

      It’s funny how “broke” college students can always find money for pizza, donuts, coffee, beer, cigarettes, etc.
      Bret recently posted..Where Would You Invest a Million Dollars?My Profile

  • I can personally say that I do think that there are certain manipulations going on in the stock market. That is why I prefer trading currencies. The Forex market is so vast that it can’t be manipulated by any one entity, unlike the stock market. Compounded by the fact that trading stocks requires so much more capital than currencies therefore you limiting your ability to leverage. So to answer your question, if I had a million dollars. I would continue to invest/trade in the Forex market.
    Louie recently posted..Dec 21, Beyond Technical Analysis Part IIMy Profile

    • Thanks for stopping by Louie.

      I have always been leary of trading currencies. They seem like a zero-sum game to me. Plus, I’d feel like a guppy in a shark tank. One thing I didn’t see coming was the dollar strengthening against the Euro. I guess I should keep an open mind.
      Bret recently posted..Where Would You Invest a Million Dollars?My Profile

  • Hey! I know this is kind of off-topic however I needed to ask. Does building a well-established blog like yours take a massive amount work? I’m completely new to running a blog however I do write in my journal daily. I’d like to start a blog so I will be able to share my own experience and views online. Please let me know if you have any suggestions or tips for brand new aspiring bloggers. Appreciate it!
    Lesa recently posted..print bed bath and beyond couponsMy Profile

    • Hi Lesa,

      It depends a lot on the blog, the blogger and the subject. For me, it’s a lot of work. Even though I only post weekly, I spend around 10 hours on each post. I spend a lot of time on research and editing. Other bloggers just seem to be able to punch out posts in a half hour.

      I just took a month off, because I was worn out and wanted to spend more time with my family during the holidays. I have been posting for five years, so it’s more of a marathon than a sprint.
      Bret recently posted..What if Everything you Know about Money is Wrong?My Profile

  • Try to have your own business but it takes tons of risk too. Why not, venture on franchise? all you have to do is pay for the intangibles and sustain the brand. Franchise has already the Brand Image and Existing market, it’s your will how to maximize it.
    Lyka Ricks recently posted..Why do split ends stop hair growth?My Profile

    • Hi Lyka,

      I think franchises can be a great opportunity, especially for people who don’t have a profitable idea or experience running a business.

      The problem with franchises, beyond the high startup costs, is that owners don’t have a lot of flexibility in how they can run their business. So, for some people, it’s a lot like buying a job. If you don’t like the franchise organization or their rules, you are stuck, because they have you sign a non-compete clause. So, you can’t leave the franchise, without giving up your business.

      I guess it all depends on whether someone is looking for entrepreneurial freedom or a reliable income.
      Bret recently posted..Money Fail: Never Track FinancesMy Profile

  • That’s a great question. At one point in time (probably last year) I thought online marketing was going to be the big thing. Later, I found out that marketing to those who try to market online seems to make more money, but even then it is not incredibly profitable. Still searching, I guess.
    Doug Gene recently posted..Outdoor Play Coupon Code Discount and ReviewMy Profile

    • Hi Doug,

      Online marketing seems to be profitable for some folks, especially those who are good at marketing themselves and marginal products. It’s not so profitable trying to sell products that are valuable to readers. I try to post ads that are saving and investment oriented. But, the most profitable ads are those for credit cards and debt counselling. In a way, those products could be valuable to my readers, but I choose not to market them.
      Bret recently posted..Money Fail: Lenders of Last ResortMy Profile

  • Just because your Real Estate market is not good, doesn’t mean Real Estate is not a good investment!
    Consider investing in a different market!
    Right now in Minnesota, you could invest 500K, buy properties outright, have them managed for you, and still make $5000 per month plus gain as the properties increase in value.
    In Minnesota, while foreclosures have increased, rents have too, as less people can afford to buy their own homes. Properties can be found for between $50K and $100K quite easily and can yield between $1000 and $1500 per month.
    Take a Mil and make 10%+ per year, or leverage it and make more!
    Mark recently posted..Why Your Real Estate Business Needs a Smart Phone AppMy Profile

    • Thanks for Stopping by Mark.

      I have thought a lot about remote markets. I could do the same thing in Texas, Nevada, Arizona, or the Inland Empire area of California. I’m just not sure if I want to be an absentee landlord. As the market starts to bottom, I may change my mind.
      Bret recently posted..Investing in things of Lasting ValueMy Profile

  • Knowing what to purchase is only part of the equation… and there are lots of great opportunities out there. And I’d be sure to have an inverse order in place to protect from downside risk.

    But then knowing when to get in and out is what really grows an investment portfolio in these volatile times.
    Doctor Stock recently posted..Steps to Diversify a Small Stock PortfolioMy Profile

  • I think investing in something like the permanent portfolio where you have a little gold, bonds, cash, and stock maybe a good way to go. Then, have a hedge with put options or something of the sort…fairly low risk
    Travis@ TradeTechSports recently posted..Facebook Stock Ready for IPOMy Profile

  • I like to idea of investing a million dollars in high quality real estate investment trusts that invest in brick ands mortar buildings. Not only do you get an annual dividend that increases usually ever year but you also get the benifit of the increasing value of the reits brick and mortar buildings over time. And well selected real estate could very well out perform stocks. Another possitive factor is a hedge against inflation rents generally increase over time along with the property values of the reits real estate holdings.

    • I thought about REITs a lot when the financial crisis hit. But, I was concerned some REITs would fail, especially after the bankruptcy of General Growth Properties, who owned all of the malls.

      I expected commercial real estate to take a major dive, not just from the economy, but from changing conditions in the workplace. I figured there would be leaner staffs, more telecommuting and more purchasing online. I was thinking there would be a massive amount of vacancies.

      I seem to have over-estimated the scope of this problem, so now may be a good time to consider a REIT. I definitely like the dividend income and inflation hedge of these investments.
      Bret recently posted..How to Balance Time and MoneyMy Profile

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