How To Invest In This Economy

For investors looking to invest in stocks during these troubled times, it is not easy to know the best thing to do. In the past, you might have been amenable to working with a financial planner, who would likely have diversified your capital across a broad base of mutual funds or stock, both here and abroad.
In this new financial era, though, the effectiveness of this investment strategy has been strongly challenged, with a lot of people that invested over a decade ago still experiencing net negative gains. So if this old style of attempting to spread out risk isn't the the most prudent course of action, than how should anyone be investing?

If you follow most of the television pundits, it is a great moment for value buying. Value investing is when you invest in equities, usually at a reduced price, speculating that it is cheaper than it should be and will ultimately gain in price to reflect their true price. This is the method that Buffett made his incredible wealth, and it is has historically proven to be a prudent method of investing.

However, investors should be careful about hastily purchasing equities simply because they are not trading at a high price. Some stocks are at a low price because they are undervalued; others, however, are now at a low price simply because they genuinely aren't worth a lot. Not all cheap stocks are the same, and any person seeking to buy at a low price should diligently research the long-term outlook for such companies. For the moment, despite the fact that they are really cheap, I would still advise staying clear of the wall street stocks, for example.

Furthermore, considering the shaky nature of the entire economy - and the endemic, all-pervasive nature of the entire economic situation - making low-priced based investments at this point should still be considered with caution, even if the underlying investment is fundamentally solid. If you have a significant time period for these investments, this kind of strategy could well prove to be very successful. That said, if you have a shorter-term time horizon - a few years, for instance - than there might be more appropriate alternatives, since these investments, even if they are intrinsically good buys, could still go through substantial drawdown if the stock markets begin to crash again.

Another strategy could be to avoid equities entirely for the time being, and instead put your money in other types of investments. For someone with a longer time horizon, I would advise looking into gold and other commodities. Gold has over time been negatively related to the greenback, and with the probability of more inflation, gold could well be a significantly high returning purchase for the long-term. In addition, one might consider looking into farming commodities, considering that the supply is increasingly limited, which may well continue to drive the market value up in the future. You could either purchase individual commodity futures, or simply buy a commodity ETF if you want broad exposure.

Finally, for people that are ok with alternative investments, there are quite a few investment managers that have generated high returns, even during the economic crisis. For such investors, non index-based investments are a good option to look into. An absolute return money manager attempts to generate higher-than-market returns throughout various financial markets by trading both buy and sell positions depending on what the market is doing. Some are trending based, others attempt to make money from reversals of trends, and some are grounded on the premise of mean reversion. Even though quite a few of such concepts are unfamiliar to most regular investors, it is definitely worth considering, even if merely as a way to diversify your current portfolio.