I often hear people say that you can’t predict the future. But of course you can, and when you make an investment you are doing just that, even if you aren’t thinking of it that way. A more accurate statement would be “you can predict the future, but very often you will be wrong.” Or, to put it as Abe Lincoln might have, “you can correctly predict the future some of the time, and you will incorrectly predict the future some of the time, but you can’t correctly predict the future all of the time.”
The big banks send out future predictions on a weekly basis.
What does that tell us? Well, a change from 2 percent to 4 percent looks pretty promising.
To take advantage of this kind of moderate growth, one might invest in the Standard and Poor index called the “SPY.” The SPY is like an exchange-traded fund consisting of a basket of 500 stocks that are representative of the market. Its values usually parallel, at least approximately, the Dow Jones, and usually the S&P number times eight also approximates the Dow Jones. But the first quarter of this year was not typical, and while the Dow Jones went up 6.8 percent, the S&P 500 went up almost 11 percent. And the QQQ, which is the basket of hi-tech stocks, went up even more. Who could have guessed?
I’ve read that people that invest in the S&P 500 usually do better than those that invest in mutual funds or hedge funds. That makes sense to me because there is no significant fee assessed when you invest directly by buying the SPY.
But of course we all know that investing in the stock market is also a bit like going to the race track. And it should be fun like that. So most of us at least try to pick a sector that we think will go higher than the average.
So a few years ago I predicted that rentals would go up dramatically in Los Angeles County, and in a few other cities, and I invested in low-priced apartments. I have been lucky in that they have paid a pretty solid 8 percent return on my investment. But the rents have not gone up so far. And except for Salt Lake City, my best investment, the values of the buildings have not gone up much either. Salt Lake was out of the ordinary because during the recession the Mormon Church made major investments there.
So I was pleasantly surprised to read in the L.A. Times recently that they predict an increase in rents in the L.A. area.
The prediction from 2012 to 2013, which is as far out as I would ever want to rely on, shows a projected increase of $.20 on $1.80, or about 11 percent.
You can own an interest in real estate without buying buildings. As with most things, there are ETF’s that allow you to participate in the real estate market without the risk of having to get up in the middle of the night to fix a toilet. Many of these are called REITs (Real Estate Investment Trusts), a special type of tax entity. I’ve owned the SSS REIT for many years, and it has done extremely well investing in self storage units. For general real estate consider the Dow Jones REIT; this REIT’s symbol is RWR. There are a number of other REITs, many with international holdings, but I don’t recommend those at this time.
For information about Merv Hecht and more details on the strategies and stocks he writes about in this column, visit his website at DoubleYourYield.com.