Two concepts that go hand in hand

Wall Street doesn't give up its secrets easily and there's always the possibility that they may be lying about some of their more time-tested theories, keeping the good stuff for themselves and shoveling fecund leftovers to the masses of passive investors in 401k, IRA, and other long-term savings vehicles.

One of the oldest known adages that Wall Street regulars like to throw around is the idea that it's not a good idea to try to time the market. In other words, what they want regular folks to do is just sit tight whether the market is going up, down, or sideways while they manage the details and make all the best profits.

Their behavior on this one concept is akin to telling a neophyte horse-player to pay no attention to whether the track is more conducive to favoring early speed or forgiving to late-running thoroughbreds. In other words, they'd prefer you to ignore the obvious. It's somewhat disingenuous of them in the larger scheme of things, since market-timing, in addition to their tricked out hedges, straddles, put-buying and other strategies is part and parcel of their operation, designed to maximize profit and avoid losses.

Anybody who's ever gambled at the Wall Street casino can probably kick themselves over ignoring obvious trends or not getting on the bandwagon of the latest schemes. It didn't take the smartest guys from Goldman Sachs or JP Morgan to note the abrupt turn in late October and early November of 2023 in the tech sector to start buying into stocks like Microsoft (MSFT), Amazon (AMZN), Meta Platforms (META) and Nvidia (NVDA).

It also may come as no surprise that these very same experts who benefitted more than most from the latest bull run might be pulling back on this very same stocks as the Trump administration takes hold of the economy and begins a slash and burn operation at the heart of government.

Timing of an entire market move is, admittedly, not for novices. Markets can look like they're rolling over or heading higher and just as suddenly reverse course just as they can switch from bullish to bearish without the least of warning.

Overall, the best advice is probably the oldest and most commonly sensible: buy low, sell high. There should never be any regret at taking profits (except at tax time), but there is a big penalty to pay if one waits too long to establish on a position or is too early when making an investment move. That penalty is loss, and it's painful and difficult, both financially and economically, from which to recover.

However, when a stock hits a 52-week high or low, that should be a signal that it's either time to get out or buy in. While some companies are making new highs purely on momentum and without fundamentals like price:earning, price:book, or is violating a chart pattern, others, especially companies with low debt and good business models, might just keep on riding higher and higher. It's at those moments that investors must rein in their greed instinct and impose upon themselves a little fear, taking some, if not all, profits and letting the rest ride.

On the downside, companies fail, so a stock hitting new lows may simply continue to do so until it ceases to exist. Catching the proverbial falling knife, i.e., averaging down, is possibly the very worst investment strategy ever considered. When every bone in your body should be screaming "sell, sell, sell," your counter-intuitive emotions are yelling back, "buy, buy, buy." Cutting your losses is a kind of market-timing art that few investors have mastered and even fewer enjoy. Nobody, and that means nobody ever, likes taking losses (well, maybe some twisted masochists, but that's another discussion for another website).

Idleguy.com has covered asset diversification previously and looked at how wealth is measured, but it bears repeating that owning only stocks, while it may be a profitable enterprise, should not be the only asset class for the astute, worldly investor keen on making money when the economy is good or protecting or keeping one's wealth when things get a little (or a lot) sketchy. Combined with a reasonable degree of market-timing ability (or plain old luck), diversifying into a variety of asset classes beyond the standard stocks and bonds can lead to positive outcomes financially and in one's lifestyle.

Stocks are sexy and the market in the U.S. is generally kind to bullish investors, at least most of the time, but they're not the only games in town. There are other asset classes, with diverse and profitable sectors that can help broaden out one's net worth in marvelous ways.

The asset classes that most people aren't very well positioned in are real estate, art, commodities, precious metals, fixed income, and cash. Let's take a look at each of these briefly.

Real Estate

As far as real estate goes, most people are content with the idea that if you have a house and a mortgage, you're a real estate investor. Given the prices of houses over the past 15 years - since the last housing bubble collapsed - it's hard to argue with that perspective. However, a more reasoned approach to where you live might lead one to believe that a house is not an investment, but actually a liability, an essential one, no doubt, but it belongs on the other side of the ledger.

Unless you own your home free and clear and a willing, at some point, to part with it, it's a liability. On paper you may be able to claim that its value has risen from the original $200,000 you paid for it to $350,000 or more in today's market. But, you need to ask yourself, "self, if I sell this house, can I find another one for the same price or less?" After all, you still need a place to live, unless you want to go on a road trip in a motorhome or live in a tent under a bridge.

Even if you own your home free and clear, there's still insurance, property taxes and upkeep, or did you not notice that things like roofs wear, rooms need painting occasionally, plumbing sometimes fails? It's still costing you something, so, yes, liability.

Actual real estate investments are things like farmland, raw land that can be developed, rental units, commercial space. For the prospective real estate investor who wants to keep it at a distance and keep one's hands clean, so to speak, there are real estate investment trusts for everything from farmland and timberland to skyscrapers and apartment complexes. They technically are stocks, but they are also less volatile than most and pay healthy dividends for the most part.

Precious Metals

When it comes to precious metals, the percentage of people who actually own any is remarkably tiny. Most experts put the number at less than 10%, and suggest that fewer than 5% of the adult population in the U.S. has any exposure to gold and/or silver, and, of that small percentage of people, most have allocations of just five to 10 percent of their total portfolio.

That's too bad because gold and silver have been money nearly forever, and have lately racked up some very healthy nominal gains. Maybe you haven't noticed that gold was $1200 a few years ago and now it's $2850 an ounce or that silver has gone from the mid-$20s to over $30 in just the last year. Gold and silver are the ultimate investment, some call it "generational," as in, "I'm leaving it for my kids." More than anything else, precious metals provide protection against all the kinds of bad things governments and businesses eventually produce: recessions, depressions, currency debasement, wars.

Commodities

Some people swear by oil contracts and futures, other swear at them. The difference is their understanding of the essential nature of things like water, oil, coal, wheat, copper, pork bellies, and on and on. Investing in commodity futures can be rewarding or frustrating, and, of all the vehicles out there, these are often the most volatile, so understanding markets, timing them properly and knowing when to make the right moves are of paramount importance in this asset class.

Art and Collectibles

This class covers everything from Picasso paintings to baseball cards, comic books, pottery, sculpture, first editions, decorative items and more. These are tangible objects with value that are regularly traded everywhere from ebay to Heritage auctions to flea markets. There's value in much of what people regard as collectible, desirable, and valuable. Seriously, who wouldn't want a Monet hanging on the living room wall overseeing a collection of Spider-Man comics and some Faberge eggs?

Similar to gold and silver in that they are physical and generally held rather than traded on a constant basis, the possibilities for profit and wealth creation are endless.

Fixed Income

Most people have no idea that when a bond goes up in value its yield goes down. Fixed income investing - bonds, notes, treasuries, corporate debt, etc. are largely the province of wealthy speculators with decades of experience. Of course, it's easy to own bonds and/or other debt instruments. Treasuries can be purchased directly from the government, paying going rates with regular payments, i.e., coupons.

The reason most people aren't invested in fixed income to any great degree is because they lack working knowledge of the market and its structure. Beyond that, it's a difficult concept to grasp, wherein somebody will pay you extra money to buy your bond thats now yielding less. Additionally, a four percent coupon just barely beats inflation, which is why people with millions are willing to buy and sell these things. In real terms, they're making one or two percent over inflation, but, on millions of dollars, those small percentages can add up rather quickly.

Cash

Finally, the thing everybody wants, needs, and seems to never have enough of, cash. There's a reason why it's in short supply for so many people. The Federal Reserve has set about debasing its value for all 112 years of its existence, and, since 1971, when President Nixon took the U.S. "temporarily" off the gold standard, the value of the U.S. dollar has plummeted. Most of us see it in terms of higher prices, inflation. But, it's actually the diminished purchasing power of the currency that makes everything appear more expensive. If wages kept pace with inflation, the minimum wage would be about $45 an hour. Sadly, that's not how the Feds play the game. They win, you lose.

However, there are times when cash is king. One of those times was during the Great Depression. With a desperate population willing to part with valuables just to provide for themselves and their families, people flush with paper money could name their prices. Businesses that failed were bought up and brought back to life by people with wads of cash in their pockets.

The U.S. and the world in general could be entering another period in which "cash is king." Recessions are good times to have extra cash. depressions are even better, but, just for security, or even speculation, keeping a handy amount of gold old Uncle Sams around isn't a very bad idea. Heck, as of this writing, Warren Buffett, arguably the best investor of this generation, is sitting on $350 billion. at least we paupers and middle class types can keep anywhere from $5000 to $50000 neatly tucked away for special circumstances.

Conclusion

When it comes to asset classes, one size does not fit all, but, diversification beyond stocks is an area that few people consider, though they should. Stocks aren't the only things that make money, but, the trick is knowing when to buy and when to sell. And that goes for anything.

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