Why to Invest Now in Stocks & Real Estate

Stacy Johnson MSN Money July 16, 2010

These investments may not look so great today. But prices suggest the time to commit long term is now.

With banks paying historically low interest rates -- in many cases less than 1% -- they certainly don't seem to be a good place for your long-term savings. At least until you compare savings accounts with the stock market, where doubts about the economy are keeping prices depressed.

A 'double-dip' recession?

I've been investing in stocks, bonds and real estate for more than 30 years. For about 10 of those years I was a stockbroker for three major Wall Street companies, so this is a block I've been around. I also put my money where my mouth is, because I disclose exactly what I'm buying and what I own.

Although I can't tell you what's going to happen in the next few months, I'm not afraid to make some long-term bets, and I'm not afraid to show you where I'm putting my money to work. Stocks: Dow 12,000 within 2 years As I began this article, the Dow Jones Industrial Average ($INDU) was down 13% from its April highs and 10% below where it stood a decade earlier. Other major stock indexes were faring worse and were in danger of the 20% declines that would signal an official bear market, triggering additional selling.

And there's certainly no shortage of negative news. There's more talk of a "double-dip" recession. Europe is still in an economic funk. China's growth is slowing. Msn.Video.createWidget('PlayerAd1Container', 'PlayerAd', 300, 213, {"configCsid": "MSNmoney", "configName": "player-money-articles-16x9", "player.vcq": "videoByUuids.aspx?uuids=660bbfe3-0b6d-77a2-76af-706dbc67dba0,39245e19-812b-2347-a276-7a9a8cdf30e7,0f168c58-c6e0-e688-a5d2-dcfbecd3aa8e,ca675609-20f5-1f14-f55d-daeb6c228cbf,2215416c-19b6-e341-76c0-c39381e15b4a,75271027-cb31-4075-8735-fa7eef8184e8,e870eb24-560d-4e4e-807b-fe854688aeff,732a3e91-0a06-431f-ba34-9be1484462b3,acb75927-7b7e-41ac-b8ea-5078bb6586f1,611fc6ef-f0f0-4922-abf9-5042b7814fed,22c1f045-90e6-4b57-a931-6d27f506470f", "player.fr": "iv2_en-us_money_article_16x9-Investing-Extra"}, 'PlayerAd1');Msn.Video.createWidget('Gallery4Container', 'Gallery', 304, 150, {"configCsid": "MSNmoney", "configName": "gallery-money-articles", "gallery.linkbackLocation": "bottom_left", "gallery.numColsGrid": "3", "gallery.categoryRequests": "videoByUuids.aspx?uuids=660bbfe3-0b6d-77a2-76af-706dbc67dba0,39245e19-812b-2347-a276-7a9a8cdf30e7,0f168c58-c6e0-e688-a5d2-dcfbecd3aa8e,ca675609-20f5-1f14-f55d-daeb6c228cbf,2215416c-19b6-e341-76c0-c39381e15b4a,75271027-cb31-4075-8735-fa7eef8184e8,e870eb24-560d-4e4e-807b-fe854688aeff,732a3e91-0a06-431f-ba34-9be1484462b3,acb75927-7b7e-41ac-b8ea-5078bb6586f1,611fc6ef-f0f0-4922-abf9-5042b7814fed,22c1f045-90e6-4b57-a931-6d27f506470f;videoByTag.aspx%3Ftag%3Dmoney_dispatch%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1;videoByTag.aspx%3Ftag%3Dbest%2520of%2520money%26ns%3DMSNmoney_Gallery%26mk%3Dus%26vs%3D1"}, 'Gallery4');So things aren't looking great in the short term. Time to run for the exits? Nope. Time to buy.

Before I tell you why, let me tell you this: Starting in March 2009, I began an online posting of a stock portfolio so readers could follow what I'm doing with my money. I also own stocks in my retirement plans, so this portfolio isn't my only exposure to the stock market. I'm not cherry-picking my picks. Each stock I buy outside my retirement plans is reflected in this portfolio at the price I paid, along with the date I bought it.

While this portfolio doesn't reflect my entire net worth -- I'm not going to disclose that online -- I assure you that this isn't "play money." It represents a significant portion of my savings.

My 20-year television career has included dozens of appearances in which I've been asked about the future of the stock market. When it comes to short-term predictions, I always say the same thing: I don't know, and neither does anyone else. In my opinion, only a liar or a fool will claim to know the immediate future when it comes to stocks. There are simply too many short-term variables that can potentially impact stock prices. Textbook example? The Gulf oil gusher wasn't on anyone's radar, and it has certainly influenced stock prices.

Predicting long-term stock prices is much easier and is the only type of prediction that matters anyway, because stocks are a place where you put money you absolutely, positively won't need for at least five years.

I think the stock market will be at least 20% higher two years from now. The primary reason is simple: In order for stocks to stick to their historical growth rate of approximately 9% annually, they'll have to go higher.

As I mentioned, stocks are down 10% over 10 years, so in order to equal their average annual return over the past 100 years, a sustained move higher has to appear. The only real question is when.

Potential problems with my "revert to the mean" investment strategy:

The world may have changed. In other words, the stock market won't return to its average annual return of 9% because the investment environment is permanently altered. Possible? Sure. It's also possible the world will come to an end in 2012, but betting against history generally isn't a great idea.

The timing may be wrong. Just because stock market returns have dipped below historical norms and should ultimately revert to the mean doesn't suggest a rally has to start soon. On Oct. 1, 2008, the Dow closed at 10,850, not far from where it was on Oct. 1, 1998. The logic I'm applying could have been used to suggest buying stocks then, but that certainly wouldn't have been a good idea, because five months later the Dow had dropped about 40%, to about 6,600.

Although this example deserves consideration, I'm betting that stocks will outperform over the next two years. If the world has changed to the extent that the stock market will never again offer positive returns, potential implications are dire indeed: The U.S. economy could fall into a long-term economic depression, and even the capitalist system might no longer be viable. In either case, the only decent short-term investment might be gold (which I own), and the best long-term investments would be canned food and guns.

As for the timing, it's true that a "revert to the mean" rally doesn't have to start tomorrow, next week or next month. There are issues that could drive prices lower, maybe much lower. That's why my prediction for the Dow is for two years from now.

But that's OK. I never invest all at once, and I always keep some extra money on the sidelines. If the market takes off tomorrow, I win, because I already have a bunch invested. If the market falls, I'll simply buy more, as I did with Citigroup (C, news, msgs) on April 16 and may do again soon. And I'll be patient. My most recent purchases of Citigroup are now "underwater", but I bought this stock because I think it's going to $20 a share -- not 10 months from now but 10 years from now.

When it comes to investing in things such as stocks, by the time the prognosis is certain and bright, the easy money has already been made. When you look at my portfolio, you'll note how many stocks I bought in spring and summer 2009. That was when times were the darkest and few of the high-profile prognosticators on Wall Street were recommending stocks. The news was all bad, and the Dow was hitting new lows. By the time the recession was pronounced dead, in late 2009, the Dow had already rebounded to 10,000, and many of my picks were up more than 50%.

Legendary investor Warren Buffett said it best: "Be fearful when others are greedy. Be greedy when others are fearful." Today, investors are fearful.

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Rate this Article Click on one of the stars below to rate this article from 1 (lowest) to 5 (highest). LowThank you for rating.UGR('ratCntrl')High var avgRating=0;avgRating=6.750877; if(avgRating!=0){avgRating=avgRating/2;avgRating=Math.round(avgRating*100)/100;var sDisplayText="Average rating: " + avgRating + " from ";var usersCount=285;sDisplayText = sDisplayText + usersCount;if (usersCount==1)sDisplayText=sDisplayText + " user";else sDisplayText=sDisplayText + " users";avgRatingElem=document.getElementById("averageRating");avgRatingElem.innerText=sDisplayText;} View all top-rated articlesE-mail us your comments on this article Discuss in a message board MSN Money InsightNew Investor CenterMarket DispatchesJubak's JournalTop Stocks blogCompany FocusContrarian ChroniclesSmart Spending blogFast AnswersDecision CentersStart InvestingMutual FundsFind Hot StocksSimple StrategiesPower ToolsInvesting for IncomeReal Estate InvestingStocks to WatchCitigroupGoldman SachsBank of AmericaGeneral ElectricCisco SystemsMonsantoAppleBPFund data provided by Morningstar, Inc. © 2009. All rights reserved.StockScouter data provided by Gradient Analytics, Inc.Quotes supplied by Interactive Data.MSN Money's editorial goal is to provide a forum for personal finance and investment ideas. Our articles, columns, message board posts and other features should not be construed as investment advice, nor does their appearance imply an endorsement by Microsoft of any specific security or trading strategy. An investor's best course of action must be based on individual circumstances.Msn.Video.createWidget('Gallery8Container', 'Gallery', 500, 230, {"configCsid": "MSNmoney", "configName": "gallery-money-article-site-wide"}, 'Gallery8');msft.msn._ic.cid='2adc8ktpr4yj4rqdx2ajy7w36bdf8ycg';msft.msn._ic.pst=false;msft.msn._ic.pgn=1; Join the discussion!Add a commentShow commentsSort by:Newest firstOldest first_uc2f12('iucGo');1 - 10 of 27PreviousNextharoem #1Wednesday, July 14, 2010 8:15:47 PMFinally signed up to comment on this article after reading msn money articles for years.Although this article presumes you have funds to buy stocks and credit to buy real estate, I still have to agree with the author 1000 percent (no typo, exaggerating is my specialty).After all the horrible writing, writers, articles, op-eds, cheer leading, dooms' daying, and overall contribution to the over-reaching momentum in the markets both up and down... FINALLY, an article I agree with and a writer who is interested in speaking my language.I'm scrounging for dollars and scrimping and saving to try and load as much money as possible into my non-retirement market accounts over the next 12 months, and possibly next 24 months if the economy stays in limbo long enough.This is a long-term planner's wet dream. Bring on the scary volatility, I say. I'm prepared to ride it.ReplyReport Abusesssssssssssuuuuckazz #2Wednesday, July 14, 2010 9:36:29 PMIt's odd that somebody would want to "side with history" in light of what has happened over the past 30 years (i.e., massive budget deficits, leading to a hopelessly enourmous debt). The U.S. has a $13.1 trillion national debt. Obama's own "Debt Commission" co-chair has already indicated that the "path we are on is unsustainable" and used words like "dire". No REASONABLE person who has any real understanding of macro-economics could honestly advise people to organize their finances based on a historical trend right now. Has there ever been a public clamor for reduced government spending, fiscal responsibility, acknowledgment of reduced entitlements, and an acquiescence to higher taxes (as long as it's used to get our national financial house in order) like there currently is, not just in the United States, but globally? Only a very foolish person would organize their financial affairs in July 2010 based on "how things have been in the past".ReplyReport Abusereelken #3Thursday, July 15, 2010 5:26:19 AM

Nice article.

Basically it says ......

1) stocks will go up, unless I'm wrong, which I may be

2) Reversion to the mean, unless things are different, which they may be

ReplyReport Abusej-burn #4Thursday, July 15, 2010 6:19:27 AMi agree with suckazz.ReplyReport Abusezoranian #5Thursday, July 15, 2010 6:28:48 AM

OK, the stocks and houses I agree with. However, IF interest rates double in the next two years (which I don't think they will, they will probably be about 6%), housing prices will go DOWN, because people can't afford the much higher mortgage payments.

Seems like a pretty big error in logic on the part of the author. If you can buy real estate now, I would still buy it, but only if you can rent it out for a positive cash flow now. NOT if you're counting on real estate going up in the next two years.

ReplyReport AbuseSweetheart 1987 #6Thursday, July 15, 2010 7:08:13 AMThe author and Haroem are right. This market will not stay like this forever. There won't be an immediate return, but we will see one good bull run in the next 3-7 years. Buy stocks now, while they're cheap, and you won't be sorry.ReplyReport AbuseOtis Campbell #7Thursday, July 15, 2010 7:13:25 AMEncouraging article, and I think that's its objective. The world IS different now though: 1) It's increasingly overpopulated. 2) Globalization is directly responsible for sucking wealth and standard of living out of the US and Europe, and sending it to Asia. Sustainability is the key, and for those reasons, accented with pessimism and failed leadership, we don't have it. I agree we can't just bet on history. Things have changed.ReplyReport Abuseknab #8Thursday, July 15, 2010 7:33:06 AMYou don't have to be a genius to know that when you have hit bottom there is no where to go but up,the genius part is helpful though when it comes to knowing when you have hit bottom and how long you will be there' it doesn't sound to me like writer of this article predicted the past crash or he would have divested himself of his house and his portfolio before the crash so if you are relying on history to predict the future one may want to think carefully before taking advice from this guy.ReplyReport AbuseSweetheart 1987 #9Thursday, July 15, 2010 7:34:01 AMOtis, that depends on how you see Asia and other parts of the world. Some see developed markets as saturated. Everyone had the electronics, the autos, the goods. There are some markets that are just now coming into play. Do you dread their coming prosperity, or profit from emerging markets?ReplyReport Abusekrewalandersen #10Thursday, July 15, 2010 7:50:45 AMThe Banks still have a lot of bad loans due in 2011 from the Alt-A loans and there's still a huge oversupply of housing in the country. I'm not a doom and gloomer and I think we're in a recovery. But I don't see any growth in these financial stocks or housing even in the mid term.ReplyReport Abuse1 - 10 of 27PreviousNext_ucf13('0'); _iuc2Om1('MSNPortalInlineComments','Initial_Load_Comment_View','http://articles.moneycentral.msn.com/Investing/Extra/why-to-buy-stocks-and-houses-now.aspx?page=2&','en-us');Are you sure you want to delete this comment?Report AbusePlease help us to maintain a healthy and vibrant community by reporting any illegal or inappropriate behavior. If you believe a message violates theCode of Conductplease notify us using the Report abuse form below. We will investigate your report and take appropriate action against offenders. We report all illegal activity to authorities.CategoriesSpam or advertisingChild pornography or exploitationProfanity, vulgarity or obscenityCopyright infringementHarassment or threatOtherAdditional comments(optional)100 character limit To add a comment, pleasesign inMSN PrivacyLegalAdvertiseRSSHelpFeedbackSite mapAbout our ads© 2010 Microsoft