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How to Invest When the Stock Market is Flat
Solution 1: Own income producing real estate.
Kings and nobility made their money charging rent to lower level vassals and farmers for the use of land. In the cities and towns, people could get rich owning a building and charging rent. This model of wealth creation is still in effect today. This is best known as the Robert Kiyosaki’s “Rich Dad” or “Lifestyles Unlimited” investment method today.
One reason why home owners have a higher average net worth than renters is that they pay off their mortgage and build up equity in the property over time, eventually living rent free and mortgage free in old age. Until home ownership was common, the majority of the population lived as renters and paid rent to landlords.
With the Great Recession, we are seeing many more people forced out of their homes and into rental units. Even if they are living in a house, it is one owned by someone else. If you own a house, commercial property or apartment building, you can generate regular cash flow by renting it out. If you do not want to handle the day to day functions of being a landlord, you should hire a property manager or property management firm, which generally charges 10% of the monthly rent to manage a property.
Income producing real estate should not be more than 50% of your investment portfolio. Nor should you pour all of your money into a single, large property. Owning several rental homes or owning a percentage of several properties is safer than owning a single, large industrial park or apartment complex. Think of owning multiple properties as diversification in real estate.
A direct investment in income producing real estate will produce income as long as you have renters or tenants. You don't even have to own it personally but can be a part owner while someone else supervises the rehabilitation and/or management of the property.
Solution 2: Invest in precious metals.
When the stock market is flat or falling, people tend to rush to safe haven investments. They put money in poor performers like federal savings bonds or savings accounts. You can outperform these safe havens by investing in precious metals. While gold receives significant press as a precious metal and is mentioned as far back as the Bible, you can invest in other precious metals.
You can invest in silver, a well known and more affordable standby to gold. Both gold and silver benefit from universal recognition, worldwide trade, industrial uses that sustain their value and common use. You can invest in these precious metals through jewelry, gold and silver coins and gold and silver bars. If your budget is constrained, investing in silver is more practical than investing in gold.
Platinum and palladium have come to be classified as precious metals, due to their high price per ounce. Silver and platinum are used in catalytic reactions, whether this is in catalytic converters in cars or large, industrial scrubbers. Palladium is a rare metal used in catalytic converters and water treatment processes.
Precious metals should never make up more than 10% of your portfolio or total investments. This rule ensures that you are properly diversified and don’t risk your savings or investment cash flow from volatility in the precious metals market or government confiscation of your holdings.
One caveat of investing in precious metals is the risk of theft, if stored at home, and of confiscation, if held in a bank.
It may be better to invest in gold and silver mining companies and exchange traded funds that focus on this sector for better returns.
Solution 3: Take control of your IRA and invest where there is growth.
It is not necessary to own rental properties outright. You can take control of your IRA and dump poor performing stocks in favor of shares in Real Estate Investment Trusts. Real Estate Investment Trusts or REITs are tradable on the open market but hold shares of an investment company that owns real estate.
Some REITs specialize in apartment buildings, others in commercial properties like malls while a few specialize in medical facilities. When you invest in REITs, you are investing in income producing properties without having to own them or manage them. Real Estate Investment Trusts are required by law to distribute 90% of all profits to shareholders as dividends. While it is less than the 100% you would receive as the property owner, you gain liquidity through the ability to sell shares.
If you do not want to invest in REITs, you can buy precious metal shares instead. You can buy gold and silver stocks instead of owning the precious metals outright. Or you could invest in mining companies, ore processing firms or real estate companies that buy and develop mining sites. However, a REIT generates a steady stream of income over time in addition to appreciation, and it is far more liquid than trying to sell a gold bar.
Solution 4: Retain cash - in various forms.
Retain about 10% to 30% of your net worth in cash. The percentage of money held in a savings account should increase with your age, since you are more likely to need it for medical bills or living expenses.
This does not mean that all of your money needs to sit in a mattress. Some of this cash should sit in a liquid form, such as a savings account at a nearby bank or credit union. Some of the money should sit in a money market account, a higher interest rate investment than a savings account.
You can choose to diversify these cash holdings by having money in bank accounts overseas, where the money is held in a different currency, or use precious metal coins that retain their value over time and are easily convertible into cash.