“If things go wrong, don’t go with them.”
Should we prepare for an economic collapse or toast the recovery? While the stock market hits record highs and the jobs report is the best in years, observers are split as to whether this is a sign of a recovery or simply the calm before the next storm.
Major media outlets are decidedly optimistic, with a “consensus of economists” predicting an acceleration of the economy, according to a USA Today Economic Forecast. Meanwhile, internet bloggers and fringe analysts (who are sometimes correct) continue to lament that the financial sky is, indeed, falling.
Among the pessimists is Gerard Celente, founder of The Trends Research Institute. Back in 2011, Celente warned, “The whole system is going down. Pull your money out your Fidelity account, your Scwhab accout, and your ETFs.” Celente’s recommendation? Buy gold!
More than a little ironically, shortly after that prognostication, Celente himself lost more than six figures in an attempt to invest in gold futures. The money was taken from his account with Lind-Waldock, a commodities futures brokerage that was owned by MF Global, who filed for bankruptcy on October 31, 2011. (Famous for his financial predictions, Celente didn’t see that one coming.)
However, in March of 2012, the rating agencies downgraded the United States’ credit rating for the first time, raising questions as to whether the US would follow in the footsteps of Iceland and Greece. And according to the FDIC’s list of bank collapses, bank failures escalated from a mere 24 in the seven years from 2000 through 2006, to over 480 bank collapses between the start of 2007 and May of 2013. (Not to downplay the seriousness of that alarming statistic, the rate of failures has slowed considerably since 2009-2010.)
Here at Partners for Prosperity, Inc., we get a lot of questions. Should people be concerned about a weakening dollar and the recent credit downgrade? Is the economy stable? What about the stock market? Do we recommend buying gold as a hedge against inflation? How might a zombie apocalypse affect the economy? (Just testing.)
While we don’t recommend putting our heads in the sand, neither do we feel that panic is the solution. Times of uncertainty are an excellent time to get “back to basics” – the fundamentals of saving, investing, and preparing for the unexpected. And so we offer those of you “seeking a financial strategy for the end of the world” (however close or faraway it may be) the following suggestions:
Reduce Debts and Liabilities.
Reduce and eliminate consumer debt while increasing cash flow. Don’t purchase cars, clothing, and other depreciating assets beyond what you need. Never use credit cards to finance consumer purchases and vacations. And always consider not only the purchase price, but the opportunity cost of your purchases. What future value is lost forever when cash is spent rather than invested?
If you have consumer debt that is stopping you from being able to save, invest, go back to college or start a business, get rid of it as fast as possible. Our subsidiary, Partners 4 Fiscal Fitness helps people get out of debt and into a positive cash flow position quickly. Most of our clients have been able to completely eliminate consumer debt in three years or less. If debt has got you down, we urge you to begin the Fiscal Fitness Journey today.
Diversify Assets; Create Value.
Some investors have been advised to trade in their cash for gold and silver. We think that having a small amount of gold and/or silver is fine, but don’t get carried away. While gold and silver can provide a hedge against inflation, physical gold and silver only has value when liquidated, and even then, the value is dictated by the price buyers are willing to pay. Gold and silver have the same problem as 401k’s and other accumulation accounts: commodities aren’t effective instruments for producing value, or cash flow.
Additionally, the value of gold, silver, and other commodities (whether physical or paper/digital, such as gold ETF’s) is speculative and determined by a market outside of our individual control. Therefore, we don’t recommend dumping all (or even most) of your cash to buy gold and silver.
Should you wish you have some gold or silver, avoid “collectibles” such as antique coins or silver-plated tea sets, unless you’re an expert in rare coins. The worth of physical gold or silver is determined by purity and weight. Collectibles are another thing altogether, and scams preying on investor fears and ignorance abound in this arena.
The principle to invest in “real” assets and not simply collect cash is a sound idea in any economy. When currencies fail or where hyper-inflation strikes, commodities like gold and silver do go through the roof in comparison. But we prefer assets that can produce cash flow… assets that do not have to be liquidated for value to be realized.
We think that better bets are investments like real estate, such as cash-flowing rental properties. Shelter will never go out of style because people will never stop needing it. This is why, in situations of very high inflation in other countries, bread, rent, and other necessities and consumables escalate in price when the currency weakens.
To prosper in any economy, don’t just accumulate or speculate – USE your savings to create and multiply value. Invest in businesses, properties, and short-term investments (life settlements, collateralized loans, etc.) where you can receive a timely return. Don’t be content to lock up your money for decades at a time in assets you have no control over.
We have written at length about the risks and unpredictability of the stock market. Stocks and mutual funds are nothing more than price speculation, and we don’t recommend gambling as an investment strategy. However, one historically dependable fact is that record highs are never sustained for long. Unfortunately, buyer psychology will make our current highs irresistible to many investors. We all know to “buy low, sell high,” but the crowd does the opposite.
If you cannot divest yourself of stock market holdings without paying unwanted taxes and fees, concentrate on companies that could survive an economic collapse; companies that provide necessities that will never go out of style.
Build your own Assets.
Only a tiny percentage of the rich build their wealth by investing in stocks. However, a majority of the wealthy own their own businesses. (Many are also real estate investors.) Businesses that produce value in any economy are virtually recession-proof and inflation-proof.
We also recommend building your own value in the marketplace through increasing your knowledge and skills. For instance, will there always be a demand for exceptional workers? We think so! Even if the dollar disappeared, value will always be traded for value in return.
Increase your Self-Sufficiency.
Start a garden. Grow your own fruits and vegetables. Consider raising chickens to produce eggs, or having other livestock (if your circumstances allow) to provide for your needs or add to cash flow. (A little known secret about our own Kim D. H. Butler – she raises Alpacas and crochets blankets from their fiber as a hobby! The animals as well as the fiber are valuable, as well as practical.)
As the movie Money & Life pointed out, we have not always been so dependent on currency. In the past, money supplemented our needs rather than providing for all of our needs. We are wise to increase our self-sufficiency so as to not be entirely dependent on a monetary system for every aspect of our livelihood.
Practice Emergency Preparation.
Whether you’re expecting an economic collapse or not, it is wise for everyone to be prepared for an interruption of “normal.” Do you have purified water and food supplies that won’t spoil and don’t require refrigeration? Could you purify water and keep warm without gas or electricity? Do you have a good first aid kit in your home? Do you keep water, blankets, flares, food, and at least a half a tank of gas in your car? These are best practices for emergencies and natural disasters that have saved lives in unexpected situations.
Build your Community.
Ultimately, it’s not dollar bills that get people through the tough times. It’s other people. It’s the family, friends, and neighbors who pull together to help each other. In these times of great mobility and short-term jobs, many of us have lost some of the “social assets” of previous generations. Strong relationships, neighborhoods, churches and communities are the building blocks of stability. Invest in people and you will never be destitute.
Is your portfolio prepared for an emergency? Do you want to go beyond accumulation and use your assets to create value and cash flow? Contact Partners for Prosperity, Inc., and we’ll show you how. You can also find out more about our philosophies and strategies by reading Kim D. H. Butler’s books, available in digital, audio, and paperback.