It’s not so long ago that everyone was getting very excited over emerging market investments. However, we have seen a slump in many emerging market economies, particularly as they did not fare well during or since the 2008 financial crisis. The same happened with gold. “You can’t go wrong buying gold,” the financial commentators said, but of course it was only a matter of time.
A similar rise in value and sudden slump was seen with property prices. This is a good example of a huge price increase being unsustainable — at some point the bubble will burst.
The idea is to buy low and sell high so that you make a profit on your investment — this is of course easier said than done. However, many people buy too late, just before prices begin to fall.
When Should You Buy an Asset?
The key is to anticipate which asset is going to see an increase in value and buy while the price is low. Sometimes the best time to buy is after a slump in the price of a particular asset. The most successful investors play the long game — they realize an asset might not instantly yield big profits but they hold onto it and wait for it to appreciate in value. Analyzing different assets is a tricky business and the professionals use specialized software such as that provided by Sungard.com/APT.
For anyone that has kept an eye on asset prices over the decades, it will be no surprise to learn that these things are often cyclical in nature. By the time an asset has been touted as the “next big thing,” it is often too late to really cash in.
A Look at Asset Prices Over the Decades
To show evidence of the ever-changing value of different assets, it helps to look at past performance. Click here to see what the professionals use to manage risk in their investment portfolios. We can examine the relative performance of assets in the following groups over the decades:
- Fixed income
From 1970 through to 2010, let’s have a look at these assets in order of performance, most successful down to least successful. The percentage denotes the overall price fluctuation throughout that given decade. Data was provided by Thompson Reuters, S&P, and the Federal Reserve Bank of St. Louis.
The most successful asset in terms of value appreciation in the 1970s was gold (1,355%), followed by commodities (171%), property (124%), inflation (104%), and fixed income (69%). Shares were at the bottom of the chart with a 63% appreciation. All in all it was a pretty good decade for investors with no negative results.
Moving into the 1980s, shares have suddenly proved to be the best investment with a price fluctuation of 344%. This is followed by fixed income (209%), property (76%), inflation (64%), and commodities (−18%). Down at the bottom for this decade is gold with a −22% price fluctuation. So in one decade, gold has gone from being the best to the worst investment asset, finishing the 1980s with an overall negative price fluctuation.
This decade sees shares still topping the charts at 379%, followed by fixed income (104%), inflation (34%), property (30%), and commodities (−11%). Gold is, once again, the worst-performing asset of the decade with a −27% price fluctuation.
Moving into the next millennium, gold has leapt back to the top with 275%. This was followed by commodities (136%), fixed income (57%), property (38%) and inflation (28%). Shares dropped from the top asset of last decade to the bottom with a −18% price fluctuation between 2000 and 2010.
Remember, even if the price of an asset rises steadily for a number of years, it could still depreciate quickly with very little warning. It is not an easy task to anticipate the future performance of an asset which is a great reason to diversify your investments. Don’t follow the latest investment trends, instead try to buy low and sell high to get the most from your investment capital.
What are your thoughts about following the latest investment trends?
Robert Farrington is America’s Millennial Money Expert® and America’s Student Loan Debt Expert™, and the founder of The College Investor, a personal finance site dedicated to helping millennials escape student loan debt to start investing and building wealth for the future. You can learn more about him here and here.
He regularly writes about investing, student loan debt, and general personal finance topics geared towards anyone wanting to earn more, get out of debt, and start building wealth for the future.
He has been quoted in major publications including the New York Times, Washington Post, Fox, ABC, NBC, and more. He is also a regular contributor to Forbes.