I don’t blame you. Interest rates are next to nothing. Stocks are experiencing frequent bouts of high volatility. Pop went the real estate bubble. Gold has increased in value on a yearly basis for the last 10 years. I’m all too familiar with the historical bias that individuals are subject to. But what interests me most is that bonds continue to hold the poorest perception. From Gallup:
Gold does particularly well among men, adults 35 years and older, those without a college degree, middle-income Americans, and Republicans. Women, younger adults, lower-income Americans, and Democrats are more likely than others to name savings accounts/CDs as the best investment.
I would assume that Real Estate rating was higher than 50 at some point between the 2002 and 2007 (the second chart is limited by the lack of the data collection in that period and excludes Gold as an option).
I have several concerns when I see this survey. Individuals–more specifically, investors–rely too heavily on past performance as an indicator of future performance. This is generally understood, but that bias will persist as long as we are subject to behavioral risk. When creating an allocation or investment strategy, it is imperative to limit behavioral risk. Focus on the data. Reduce the interpretive analysis.
After focusing on the data, understand the limitations and strengths of your analysis. There are several possibilities why bonds remain at the bottom and real estate remains at the top of individual perceptions (second chart, ex-Gold); trend expectations, potential reward, and headline significance (for lack of a better term) all play a role. The limitations within this model–that is, the qualitative model–is that there are no standards or benchmarks that allow for comparison over time or between assets. For instance:
- On Trend Expectations: Why do you expect real estate prices and / or bond prices to reverse? What has changed?
- On Potential Reward: Have you considered the effects of limited risk with compounded return?
Finally, it is unfortunate that the survey perpetuated the meme of “long-term” investments. Instead, I would suggest that there are periods of opportunity for every investment. However, the outlook for those investments becomes cloudier the further out in time we try to project as innumerable, unaccounted for variables compound over time.
So you can conclude that the US Debt-to-GDP ratio (not to mention the future liabilities of Social Security and Medicare) in combination with excess money supply will hinder economic growth and create inflation; which somehow makes Gold the best long-term investment. But I would rather collect and model the data; understand the risks and measure the potential reward while limiting my time horizon.