Understanding Long-Term Investing

By Norm Franz,
Jewish Voice Webcast Guest

Money expert Norm Franz joined us back in November 2010 during our monthly live Jewish Voice webcast to answer viewer questions about financial concerns. Long-term investing, particularly in the stock market, has many of us stumped. Norm explains how we should look for a return of investment instead and shows us the smart way how.

Return of Your Investment

One of the things about investing that we all have to remember is that your return is directly commensurate with your risk. In other words, the higher the return, the greater the risk. The return is high because the risk is there, but for taking a risk you get a good return. If you want 100% return on your money, you can find a lot of different investments, but it’s pretty risky.

Our current financial system is not offering a lot of return. That’s because they are trying to keep interest rates down so that they can stimulate the economy. When people borrow, they spend. With bonds and even municipals, your interest rates are pretty low right now, because they are trying to stimulate borrowing and spending. So you are not going to have a lot of high returns.

In this environment, we are more interested in return of your investment rather than return on your investment.

SubPrime Crisis of 2008

In early 2008, right after the subprime crises hit, we saw a 60% drop in the stock market. Whenever an investment goes from high to low very quickly, that is artificial wealth. It’s not righteous wealth, because godly, biblical wealth is not here today and gone tomorrow. When you see the stock market crash 60%, you have to understand that was a debt bubble, because there was a lot of borrowing and buying of stock.

The economy is Main Street, the financial system is Wall Street. When I say financial system, I am referring to the system’s ability to get money into investments or into the economy or into whatever you are trying to move in there, like real estate. When that system shook and all of those subprime mortgages began to collapse, lenders tightened up and stopped lending money. Because it was the over-borrowing and then spending into those investments that caused the prices to artificially inflate, when the lenders stopped lending, those artificial values came crashing down.

The government stepped in because Wall Street and Main Street were in trouble. Wall Street had pretty much failed and the banks weren’t lending money. The government was the only one with a big enough balance sheet to borrow enough money to spend on the economy to get it going.

A lot of that money in the QE 1 and now the QE2, where they are going to pump another 600 billion into the economy, a lot of that doesn’t get into the economy, which is obvious because of the unemployment and the slow down. So where is it going? It’s going into the stock market, and it’s going in through the different investment houses. They are taking a lot of that money and putting it into the stock market. That’s why we had a stock market rally. It came back up to 11.6, 11.7. Now it’s down around 11.1 or 11.2. That is a bubble also.

They can keep this leveling around the 11,000 range, but what we are recommending is don’t got back into that yet. Go to the sidelines for right now and let’s see how this thing fleshes out.

Best Stock Market Options

If you are going to go into the stock market, get into companies that are international in nature, because some of your emerging markets, like South America and Asia, are still going fairly well. Because those companies do a lot of business overseas, they are probably going to be a bit more stable a little bit longer. But those are going to be shaken too. Their economy and the way they are going is built on a debt bubble. Everybody’s borrowing money to spend, and that means the debt is going up.

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