Protecting Wealth for and in Uncertain Times
Storing value for future use is a BEST practice anyone can learn
Uncertain times are upon us.
Extremely uncertain given the recent geopolitical events in Europe regarding Russia. That aside there still remains huge structural problems in the United States and the entire world as a whole.
Monetary policy has been off the rails since 2008. Fiscal policy has grown ever more connected to monetary policy. CPI inflation is running at 7.5% Y/Y, a 40 year high! Debt across the country in every sense is at record levels. While at the same time stock markets are at record highs.
All of this mayhem is set to unwind sometime in the not so distant future. Collapse is more of the explanation I would give. Regardless of magnitude our entire financial system is long overdue for a cleansing.
Reversion to mean or normalization of policy to be more clear. Preferably sound principles will find there way into place following these events. That idea may be slightly off the rails in itself.
Either way I believe cooler heads will prevail. Logic, reason, critical thinking and objective data interpretation are ever so crucial. We all most erase emotions and feelings when preparing for the times ahead.
Sound thinking can allow anyone to overcome these trying times we find ourselves in.
Wealth preservation is something I regard as the single most valuable thing any individual can do for themselves and family given the circumstances we find ourselves faced with. It is not about profiting from the end of the world, though seizing opportunity in a crisis is something to keep in mind, rather making sure what you have now is still there when all the dust settles.
Currency, “Dollars” for must, or money is nothing more than a thought abstraction. Simply a number on a screen with perceived value established through faith. If systems fracture faith in the currency would evaporate in an instant. Green pieces of paper at the end of the day are just that if financial and government systems come under pressure.
“Green pieces of paper..”
Preserving ones wealth is about having access to enough "real" things, that it does not matter what the value of green paper is.
I believe the probabilites are low enough that remaining in the current system is reasonable for most. Some may want leave it all together, that’s great, but the amount of people dependent on the system gives me reason to believe ultimate doomsday will be avoided.
Having access to "real", tangible assets, I believe is the best way to ensure your wealth.
Having a mortgage is the best start for anyone. A home provides shelter with access to a reasonible standard of living. Todays system allows for just about anyone to find a house if they are willing to live within their means.
I bought my house at 20 years old, with 750ish credit and nearly zero down. If I can do it so can you..
Housing prices adjusted for inflation have consistently reverted back to mean. Hence owning a home preserves value rather then increasing it. Far to many Americans have gotten lost in the idea that the value of their home always goes up. Sure in nominal terms it does but not in real terms. Just looked at that chart above..
A house is just one asset but you aren't going to want to sell it when times get tough. So what can you get in your hands right now to preserve purchasing power for the future?
Physical Gold and Silver have been considered money for thousands of years. The probabilites of this changing are extremely low. Understanding history is always your best friend when preparing for the future.
Having access to gold or silver coins, even jewelry, gives you means of bartering with others. Allowing people to still engage in commerce even if the value of the current currency is diminished.
Hard assets in the form of precious metals is one of the safest places to store wealth.
Historically paper currencies have always lost value in terms of ounces of gold. It's not that gold ever gets more valuable but rather currencies become less valuable with governments running up debt and devaluing their currencies as a result. Gold on the other hand maintains its value.
Take the price of oil measured in grams of gold. In 1950 it took about 2.3 grams of gold to buy a barrel of oil. Today its takes about 1.5 grams of gold to buy that same barrel of oil. In terms of gold oil has gotten cheaper but if you price oil in dollars the price is at record highs.
This same logic is can be applied to silver. Silver prices per ounce or gram are a lot cheaper then gold. Making it easier to have more quantity and divisibility while serving a similar function.
Gold and Silver have properties which allow them to store value over time. Whether it is in the value they serve in industry or throughout history as being accepted as real money. That value has stood the test of time.
Holding these assets outside of the system, in physical form held in your possession, is the best way to maintain your purchasing power against a currency that is losing value. It being out of the system means you do not have any counter party risk to worry about.
You alone hold that value in your own hands.
Do I think we will get to the point we use gold or silver coins normally for commerce, probably not. There is a higher probability we return to a fractional reserve system that limits the amount of currency that can be created by a fixed amount of gold. Effectively reestablishing a Gold Standard which we have seen succeed many times throughout history. Either way you can always exchange precious metals for the currency that is currently in favor or use it to negotiate with people.
Holding ten to twenty percent of ones net worth in physical form is a good way to hedge all of the worlds uncertainties.
Notice how the cash value of $100,000 in gold from 1913 is worth less today in cash value or nominal terms. Hence currency losing its value while gold maintains it.
Remember you own physical metal not to make money but to maintain your money therefore your purchasing power. Therefore maintaining your wealth over time regardless of what happens to the currency.
Notice how golds price is also stable over periods of time. Stability plays a huge role in maintaining a store value over time. Major spikes in price come during times of significant inflation when the currency supply is expanded. The gold supply cannot be increased the same way as currency supply can, causing the price of gold to rise to meet the amount of currency in circulation.
There is a new kid on the block in the last ten years, Crypto and Cryptocurrencies. Bitcoin being the most prominent and most well known. Cryptocurrencies operate on a blockchain which creates a constantly evolving ledger tracking all transactions that take place on that blockchain. This provides for all transactions to be 100% transparent between peers.
Overall they act to serve a similar function to gold in having access to money outside the financial system, while also providing a store of value for the long run.
I cannot say I am overly confident on their abilities to maintain their value overtime as they have only existed for a short period of time. Crypto and Bitcoin have been around for 15ish years while Gold and Silver have been for thousands..
That being said I do agree with cryptos ability for people to hold purchasing power outside of the system. This would not be on an exchange where you buy or sell crypto coins. Rather a hardware wallet that you hold in your hand. That wallet gives you access to your coins anywhere with an internet/computer connection.
Crypto functions in a peer to peer way. Meaning two entities can conduct a transaction directly if they both have access to the blockchain their coins are on. I am an extreme novice on this subject but do acknowledge the ability for someone to store "X" amount of coins on a wallet. Allowing them to take that wallet anywhere and have access to the value of coins contained on it. That wallet gives them access to the purchasing power of their coins provided there is another entity who conducts transactions on the blockchain.
The peer to peer function of crypto functions much the same to that of two people exchanging something for a gold/silver coin. Both transactions take place outside of the financial system between two individuals or entities.
Whether or not those coins I have on my wallet will be worth anything in the future could be anyone's guess. If you choose a coin on a blockchain that is growing in adoption and use case, the probabilites increase that your coin will maintain its value.
Notice these types of transactions are meant to occur outside of the financial system given the worse case scenario.
I believe the probabilities are low that we will reach that scenario. Could there be possibilities where having access to things such as these be valuable. One hundred percent YES!
We've seen with Canada how easy it is for government to remove people from the financial system. Say or even think one wrong thing and all your wealth contained within the system is gone.
In uncertain times there is no better way to have certainty then knowing your purchasing power is protected. Uncertain times rarely last long. Preserving some wealth to last that time is all the certainty I need to not let the noise of the world truly impact me.
My stock portfolio could go to zero along with all my bank accounts with one wrong move. Having hard assets set aside to cover whatever situation I find myself in allows me to not worry about those situations.
Uncertainty always exists so it is simply a measure of probabilites when it comes to certain outcomes.
These are just some ideas about maintaining purchasing power overtime. I'm going to go further into some ideas about growing your purchasing power following some of these same underlying ideas.
Stay Tuned!
I am not a licensed financial advisor. Do not take anything I say or recommend as financial advice. These things are my opinions and represent how I am positioning myself. Always do your own due diligence and contact a licensed financial advisor before making investment decisions.