There is no such thing as a safe investment. Cash isn’t safe, money markets aren’t safe, bonds aren’t safe, stocks aren’t safe, gold isn’t safe, real estate isn’t safe, and the list goes on and on. It’s sad news, but when you are dealing with your money it’s better to have the sad truth than blissful ignorance.

Cash is not safe; in fact over long-term periods it almost always loses purchasing power because of inflation. The loss in purchasing power means that in “real” economic terms holding cash over long-term periods results in negative returns.

Gold is not safe; historically gold has had lower long-term returns than many other asset classes such as stocks or bonds while also being more volatile and unpredictable. Gold has often performed well in periods of panic, and physical gold tends to move along pretty well with inflation over long-term periods. There are few investors with a goal to “have the equivalent portfolio value 25 years from now as I have today in terms of purchasing power.” Most investors need much more than that from their portfolios, meaning in most circumstances gold is not safe.

Real estate is not safe; real estate like owning physical gold has the positives and negatives of being a tangible asset with low liquidity vs. most other asset classes. The typical real estate investor (home buyer) does not achieve good capital returns compared to alternatives such as stocks or bonds over their time horizon. In fact a huge percentage of home buyers have negative returns over their time horizon, but still achieve their primary goal of having a home to live in. If the person’s goal is to have a place to live, then compared with the alternative of renting, buying a home (real estate) is often very attractive. But when the goal is strictly capital return on investment there are many statistically superior options to real estate.

There are potential upsides and dangers for every asset class, these examples could go on and on. The key is matching the appropriate mix of the different asset classes.

Every investment has opportunity costs, and probabilities of success. The key to selecting the right asset is to properly evaluate the time horizon, and objectives; then compare outcome probabilities of the various asset options.

Always remember that with financial planning and investing there are no certainties, only probabilities.

Written April 13th, 2016