As people say, the only constant is change. Fads come and go, whether it is in fashion or in investing. There is a time to wear a fashion trend and there is a time not to, unless its leggings. There is always a time to wear leggings. The last piece I wrote was about staples for a wardrobe and staples for a portfolio, so to counter that here are some thoughts are the ever changing fashion world and investment world.
And on the other side of the spectrum from our staples, are the fashion trends and fads. The same is true with different investments, the ones that come and go with different market cycles. An easy one to think about is the price of oil and gas. I’m sure everyone is happy about the drop in gas as they fill up their tanks, but oil and gas investors are not quite as ecstatic as we are. At some future point, oil might be a great buy with growth potential if you believe it will return to its previous high of $151.72 on June of 2008. It went to a low of $28.50 January of this year. As of May it traded up to $48.46, still far from its previous high though.
Speaking of highs, one fashion trend a lot of people are happy it’s over is the hair poof. The reality show Jersey Shore unfortunately made this fad extremely popular and the higher the poof, the better. I’ll be honest here, I did take part of this trend. Thankfully, hair styles have come down to a more realistic height for everyone.
Going back to the investment side of it, think about the value of your house after the financial crisis of 2008. Real estate was hit hard then, and although we don’t think about it as much as our portfolio value, your house’s appraisal value probable still went down a good amount. Now it might be a good time to buy depending on where you live. Lower interest rates have helped fuel the housing sector by making it more affordable to buy a mortgage.
Today we’ve seen the resurgence of another fashion fad, the crop tops. Crop tops were hugely popular in the late 90s, and now every prom and bridal store seems to have crop top gowns. The chunky heals were huge during the Spice Girl Era, and then the trend went to the pointy heal only to come back to the chunky heal again.
Gold and other metallics come and go as fashion trend just like gold as an investment has had its highs and lows. Gold hit a low in July 1970 when its price was $222, then went up to its high in January of 1980 to $2,066. This was followed by another sharp drop to $353 in February of 2001, only to recover back up to $1,235 in March of 2016. As you can see, there can be good times to own gold and a time you may not want to.
Fashion fads can flourish and become an instant sensation, but just as quickly as they come, they go. Some investments like oil, real estate, gold, and other commodities, can be very volatile. Emerging market countries have been hurt by the stronger dollar and low gas prices. European companies have also struggled by the stronger dollar. If farmers have horrible weather one year, this can hurt their produce and their prices the next year. We can never predict when a new fashion trend will hit the market just like we can never predict the height or low of an investment. Usually it is better to wait and see what trends are sticking and worth buying, or which direction a stock is moving in.
Because of these type of investments have a volatile nature, it is usually not a good idea to become overly invested in them. You don’t want to invest your entire investment account into oil, and be overexposed to a pullback like we saw this past year. The same goes for fashion fads. Don’t buy the designer brand for a fashion trend that won’t last through the year. I always like trying out the low cost version just in case it isn’t flattering or it fades out quickly. It also gives you a good reason to shop!
Jessica Weaver, CFP®, CDFA™, CFS®
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