How do you invest during a robbery? Robbery? What robbery? Would governments ever take away our wealth? How trustworthy are they with taxpayer’s money? Is this just conspiracy theory or fiction? Look at https://www.weforum.org/agenda/2016/11/how-life-could-change-2030/
I believe the massive financial stimuli by central governments in Canada and the US are creating a huge bubble in the stock and housing markets. I cannot understand how a government-mandated productivity decrease causes our wealth to increase. Government stimuli through increased monetary supply and infrastructure spending is certainly pumping more money into the system, but not more wealth. A day of reckoning is coming, but I don’t know when. In the meantime, we need to work on our financial fitness by sharpening our skills in four areas.
Our struggle with finances can be depicted as having four battle fronts: $erving, $pending, $aving, and $haring. Last month we looked at $pending. This month we want to look at the one on the right side of the money rectangle in the yellow zone: $aving.
1. Reduce Debt. Usually, the first step to true savings is debt elimination—especially debt interest which is not tax deductible and relates to depreciating assets. Make no mistake: Debt elimination is difficult. We have no positive feedback while repaying our lenders. Check out the Thirteen Stories for encouragement on debt elimination. Debt reduction is especially difficult when interest rates are incredibly low, like they are now.
2. Historic Lows. Global interest rates are at a 5000-year low. Never in recorded history have rates of the world’s leading nations been this low.
3. Two Bubbles. Super-low interest rates usually mean the stock market and the housing market are super high, and perhaps even in two big bubbles. In my opinion some stock valuations form a bubble; Tesla is an example. It makes no sense to me how the market value of Tesla exceeds that of all other automotive companies combined, unless you believe that everyone will soon be driving a Tesla.
4. Bulls and Bears. Last bear stock market was in 2003. A bear market is typically defined as a 20% drop that lasts for at least six months from recent highs. The most common usage of the term is to refer to the S&P 500‘s performance; which is generally considered a benchmark indicator of the entire stock market. Check the attached chart showing Bull and Bear stock market for the past fifty years.
5. Cash: King or Trash? To protect against bear markets, I used to hear that “Cash is king.” Recently, there is a new slogan “Cash is trash.” This reminds me of the wheelbarrow story. Between WW1 and the rise of Hitler in 1933, Germany went through a period of hyperinflation. The story is told of a woman bringing her wheelbarrow full of paper money to go shopping. She left the money outside the store unattended. Sure enough, when she came out, she found all the paper money in a big pile, but her wheelbarrow was stolen. This brings me to the next point...
6. Back to the Basics. We need to invest in companies that offer basic goods and services that can reprice their goods and services to keep up with inflation. Even in a recession/depression, companies like Procter and Gamble usually survive as people still buy soap and toothpaste.
7. A Favourite Fund. One of my favourite mutual funds with this philosophy is the Ivy Foreign Equity fund. When the S&P 500 was down 38.5% in 2008, it was down 6.7%. Of course, that is still a loss. In a hurricane everyone gets wet, but not every house is destroyed. Downturns are inevitable. Pain is unavoidable. The question is, “How can we stay invested, yet minimize our losses and maximize our gains?”
8. Artificial Intelligence. Just as I do not trust self-driving cars, neither do I trust robo-advisors. Artificial intelligence is just that: ARTIFICIAL. When it comes to investing in turbulent times, we want all the intelligence we can get—natural and artificial. I like this article published by CI Funds: https://ci.com/en/Financial-Literacy/how-active-management-makes-a-difference
9. Tax-Free Investing. Do your risk taking in your Tax-Free Savings Account (TFSA). When Guaranteed Investment Certificates (GICs) pay less than 1% per year it’s silly to tax shelter a miniscule return.
10. Administration Fees. Certainly, it’s good to keep admin fees low, but when I go to a hospital, I don’t pick the one with the lowest administrative costs.
11. Bitcoins. For those who may be thinking about Crypto-Currency as the solution to a looming global recession, check what former Prime Minister Stephen Harper has to say about crypto currencies: https://youtu.be/HAKetLKjCP8?t=1790
I enjoyed listening to the entire interview with Mr. Harper and found his comment on asset inflation (i.e. super-high house prices) enlightening. Many of us think only of consumer inflation and not asset inflation. Starter homes are skyrocketing in price.
12. Being Prepared. I am all in favour of emergency preparedness as in food, clothing, and shelter, but much more for a close connection with the Person who has power to command food into existence as He fed thousands starting with almost nothing. Having a financial partnership with the living and active Creator is the best preparation for an uncertain future. More on that topic next month when we look at the left-sided battle front of the money rectangle $haring—voluntary and involuntary.
Sooner or later the American and Canadian government economic stimuli will cease. The punch bowl will be empty. A closed-system economy is not sustainable. It is counter-intuitive, but the key to survival is found in the left side of the money rectangle: $haring.
Excerpt from the Sage Home Book on hiding spots around the house.
Here Are the Top 10:
- Hollowed-out books. Criminals tend to be uneducated, which is why they've turned to crime to make their living. They're practically allergic to books! But if you have only a couple of books on a bookshelf, this may be a clue that they're actuall hiding places for your valuables, so make sure your library is large enough to serve as a tedious place to search.
- A false VHS tape or VHS carton. Who watches VHS tapes anymore? Again, follow the rules above for books. A few can be a clue, but many can be a time-consuming distraction.
- False containers in the kitchen cupboard, under the sink, and in the bathroom, such as fake food cans and boxes, false cleaning product bottles, and personal hygiene items, and even in a heavy tub of "cat litter." Some false containers available on the market today actually look like fals containers, so you might want to save yourself the expense and create your own.
- In the false bottom or under the plastic liner of a bathroom or kitchen trash can. No one wants to go pawing through your trash in the slim hope of finding something worth pawning.
- Wrapped in plastic and aluminum foil and stored in the back of the freezer. This is also a good place to store documents and paper currency in case of a house fire.
- In a floor safe in the bedroom closet. While this location may be obvious, a burglur would have to exert a lot of time and energy—and create a lot of noise—trying to break into a floor safe, which is also generally of the heavy variety, making it not only hard to open, but hard to steal whole, if the thief plans to break into it later.
- Inside a house plant. Using the same method as for trash containers, a plant's soil can be contained in a waterproof liner that can be lifted up to hide items underneath. Just make sure the items you're hiding are in a waterproof container, too.
- Inside a false wall outlet. Make sure it's not a live receptacle or in the way of any electrical wiring.
- Within hollowed-out/removable building components, such as wainscoting, floor panels, door jambs, window sills, and cabinet doors.
- In the garage inside boxes marked with mundane labels, such as "Xmas Ornaments," "Kid's Clothes," "School Projects," etc. Again, the more boxes you have, the longer the burglar will have to search—if he's so inclined—to find something worth stealing.