Where is This Legendary Investor Putting His Money?

Famous Physicist Reveals 168-Year Old Wealth Secret He's so smart that he has received 16 honorary doctorates from universities in eleven countries, and has published 25 books. His research covers a wide range of topics in thermodynamics, heat transfer, and fluid mechanics. But in recent years he's done extensive research on a little-known phenomenon that was discovered in 1845. He says this could have a huge impact on your wealth this year. For full details, click here. Where is This Legendary Investor Putting His Money? By Evaldo Albuquerque, Editor of Retirement Strategist Dear Sovereign Investor, Retail investors always seem to find a way to lose money. After getting burned in the stock and housing markets in 2008 and 2009, many of them decided to move most of their money into bonds … and they missed the huge stock-market gains we've been seeing since then. Retail investors nervous about the stock-market run up since 2009 made the same mistake last year. During the first seven months of 2012, when the Dow Jones Industrial Average (DJIA) was hovering around 13,000, nervous investors withdrew $180 billion from stock mutual funds. Today, the DJIA is over 15,000. A large portion of that withdrawn money moved into bond funds. Now, with bonds plunging, retail investors have reversed course again by shifting money back into stocks. So far this year, investors have poured $92 billion into stock mutual funds. After missing a 150% rally in the S&P 500 Index since March 2009, retail investors are finally coming back to the stock market. I think this trend of investors moving from bonds into stocks is likely to continue in the short term. There's just one problem: They're moving out of the frying pan and into the fire… Advertisement The World's Biggest Ponzi Scheme is About to Unwind Our company just received an eye-opening alert about a landmark event that's set to soon rock the economy. Consequences of this event could be so dramatic – most middle-class Americans will not be able to imagine them, let alone believe them. Yet you have the potential to make a vast fortune in the months ahead by knowing what's coming. Before you invest another dollar in the markets, I recommend you watch this video. If you haven't seen it yet, I urge you to click here now. The Fed's money-printing program has driven most asset classes to very expensive levels. That includes the two main asset classes U.S. investors tend to invest most heavily in: domestic bonds and stocks. Investors who buy at these levels will essentially lock in a low rate of return for the next decade. So, which asset classes are most expensive? And are there any asset classes that still offer opportunities? Well, let's check in with one of the best investors of all time. Don't Ignore This Legendary Investor Although Jeremy Grantham is not as celebrated as Warren Buffett or Jim Rogers, his status as a legend in the investment world is undisputed. Grantham is the co-founder and chief investment strategist at Grantham Mayo van Otterloo (GMO), where he oversees $100 billion in assets under management. He has built much of his investing reputation over his long career by successfully steering his clients away from bubbles and crashes. For example, he avoided investing in Japanese equities and real estate in the late 1980s, right before Japanese stocks collapsed. He also avoided technology stocks during the Internet bubble in the late 1990s, and he warned his clients about the market crash in 2008. Grantham recently published his outlook for the next seven years. In it, he predicts that most asset classes will return little in the next few years. But there are a few exceptions. Below you can see Grantham's estimate of future returns for the major asset classes. Keep in mind that these are real annual returns, which keep purchasing power constant over time. See larger image Here's how he explained his outlook: "Emerging markets and Japan are only moderately overpriced. European stocks are also only a little expensive, but in today's world are substantially more risky than normal. … Forestry and farmland … is also only moderately overpriced. … But much of everything else is once again brutally overpriced. Notably, U.S. stocks now sell at a negative seven-year imputed return. … As for fixed income – fugetaboutit!" Can Grantham be Wrong? There's no guarantee that Grantham will be right. But I wouldn't bet against him. He wrote a similar outlook 10 years ago, where he forecast the return of major asset classes … and he nailed it. This time, I think he's right again. Grantham is not pulling his numbers out of a hat. He bases his estimates on current valuation. He is assuming that expensive assets will provide little return, while relatively cheap assets will perform the best. History has shown that's exactly what happens over the long term. Emerging-market stocks are trading at a single-digit price to earnings ratio. So it doesn't surprise me a bit that Grantham is forecasting solid long-term performance for this asset class. In the chart above, you can see that U.S. stocks stand out for their poor predicted performance. The long-term average real return for U.S. stocks is 6.5%. But according to Grantham, that's not going to happen in the next seven years. Instead, he predicts that investors will lose money in U.S. stocks, with a real annual return of minus 2.1%. According to Grantham, if you invest $10,000 in the overall U.S. stock market today, you will end up with $8,619 in seven years. Does that seem like a good investment to you? Based on his numbers, if you invest the same $10,000 in emerging-market stocks, for example, you will end up with $15,848 in seven years. Grantham's message is simple: Long-term investors should consider reducing exposure to U.S. stocks and bonds, and increasing exposure to emerging-market stocks and timber. Regards, Evaldo Albuquerque Editor, Retirement Strategist P.S. My colleague, Jeff Opdyke, has just released his latest research on how you can profit from investing where economies are healthy and growing, including the emerging markets I referenced in today's article. To hear what Jeff believes is one of the biggest investment opportunities of the next five years, watch his exclusive video here. TODAY'S EDITOR Evaldo Albuquerque Evaldo's Retirement Strategist is a dynamic investment product aimed at adapting to ever-changing economic and market environments. It is the perfect product to help you profit from booms and protect you from busts. Click here for details. 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