Thursday, January 28, 2010

Wealth Preservation, Investing, and Prepping in 2010

Marc Slavo
LewRockwell.com -

The trend going forward during this economic depression is getting back to basics. We often discuss, "prepping," as a way to protect your family in the event of an unforeseen catastrophe (natural or man-made). Recently, we’ve seen more financial analysts and advisers recommend shifting from traditional investments like stocks, bonds, CD’s and money market accounts, to tangible assets that will gain value regardless of what stock and bond markets do.

Of course, we’re not saying you should go out and spend your entire 401k retirement account on 5 gallon buckets of rice, but diversifying into hard assets on a variety of levels could be a great investment. As the US Dollar continues its decline over the coming years, the price of essential consumer goods is likely to rise. Certain goods, however, like real estate, cars and anything that is driven primarily by credit expansion, may experience a deflationary impact in real dollar terms, while others, like food and energy may see explosive price increases.

Paul Mladjenovic of SuperMoneyLinks.com discusses 3 Things Everyone Needs to Do with Money in 2010:

    "OUR GOVERNMENT CAN NOT SPEND OUR COUNTRY INTO TRILLIONS OF DOLLARS OF DEBT WITHOUT CONSEQUENCE.

    I am working on my next set of forecasts and seminars but before they are out, I want everyone (and I mean EVERYONE) to consider 3 simple things to gain greater financial peace of mind:

    • Diversify away from paper assets.
    • Accumulate essentials.
    • Re-focus your portfolio with emphasis on "human need."
    [Read the full, expanded article]

In Buy Commodities at Today’s Lower Prices, Consume at Tomorrow’s Higher Prices we offered some ideas about how to be a "prepper," and "investor," simultaneously.

    "If you are a prepper, for example, who is already stocking essentials foods and goods, you’re way ahead of the game. As commodity prices continue to rise for a variety of reasons, your "investment" is paying off in real terms. Buy 10 pounds of rice today for $10, and when that same bag of rice goes to $20 a year or two from now, you can say you earned a 100% return on your investment! And the great thing about your investment, is you don’t have any counter-party risk, for the most part, meaning that you own the physical good and it is in your possession – you take delivery at any time!"

For those interested in investing some of their wealth into real, tangible assets, consider the following as food for thought:

  • Precious metals
    Though gold and silver are no longer considered money by most "mainstream" economists, the fact is that central banks in China, India and Russia have been continuing to stockpile precious metals over the last decade, and they will likely continue to do so going forward. Why? Because as all or most of the paper currencies around the globe are debased, gold and silver will become the de facto monetary unit against which other currencies are valued. As Dr. Marc Faber has said on several occasions, "Own gold and become your own central bank." Many contrarian financial advisers who lean towards the Austrian school of economics recommend allocating 10% to 20% of your current investment/retirement portfolio to gold. If you are banking on having that money when you retire, consider speaking with your financial adviser about purchasing precious metals in the form of mining companies or ETFs. If possible, a portion of your holdings should be in physical bullion like bars and coins, which will provide added security as you will have no counter-party risk because you have it in your possession.

  • Food
    As the US Dollar loses value and other countries become hesitant about funding our trillion dollar debts, the cost of food will continue to rise. Combine the dollar’s monetary issues with the fact the many farmers around the world are unable to gain access to loans to continue or expand operations, and you have the potential for price increases not just because of dollar debasement, but supply problems. The other threat for food is that we may very well experience a perfect storm event, such as that experienced in the dust bowl of the 1930’s, meaning that heavy rains, or heat or cold, may affect agricultural output, further straining supplies and pushing prices higher. Foods like rice, legumes, pastas, wheat, oats, and canned goods could be purchased today and stored, in some cases, for up to five years or longer. Consider the price increases that can happen in these food stuffs over the next five years and this investment may see significant gains. And again, you eliminate counter-party risk because you are holding the tangible assets yourself. (This video shows how The Survival Mom has dedicated a room in her home for just this purpose.)

  • Sustainable Living
    Well-known trend forecaster Gerald Celente has suggested that one of the mega-trends of this decade will be living on less and becoming more self-sustaining. Individuality will return to America, and a push to distance oneself from the "grid" will take off for a variety of reasons. Rising food and energy costs are likely to be two of the major catalysts for this trend. How can you invest for yourself? First, consider investing your time and money into skills development like gardening, farming, sewing, woodworking, or hunting, as these skills can certainly be an investment that will pay off in the future. While it may not be feasible for most to become farmers in terms of commercial enterprise, it can be accomplished on a personal level by those who have a bit of desire and choose to expand their skills base. Urban gardens are already popping up all over America as the micro-farming trend continues to gain acceptance. Even in the suburbs, on a fifth of an acre of land, those with the ability to think outside the office cube can grow enough food to support their entire family for a year.

    For those concerned with rising energy costs, your options are basically limited to investing in energy stocks and ETFs, or, investing in yourself and create your own supply of energy. Learning how to develop and implement a power grid in the comfort of your own home will not only give you the skills to earn a living in the future, but to provide nearly unlimited energy for your household through use of solar, wind and hydro power. Investments into alternative energies for your home may seem costly, but not if you consider the rising cost of your electric and gas bills over the next couple of decades. Sustainable living investments are not one-off investments, say, like storing a bucket of beans, but rather, pay dividends forever.

  • Clothing/Footwear
    Though not often considered as investments, extra clothing, especially things like socks, underwear, house shirts, shoes, sweat shirts and sweat pants, will likely move up in price as well. While adults may be able to stretch their clothes for several years without replenishing their closets, children are a whole different story. If you’ve got kids, this is one investment that can really pay off. Purchasing graduated sizes of clothing for your kids with a time horizon of 3–5 years can really save you money down the road. It is true that in America today, these items are readily available and imagining a scenario where these items will not be on store shelves is hard to do. But consider the East Block circa 1985, and you’ll have a different perspective. Because of isolationist policies, closed currency and price controls, these items were very difficult to come by. If the US experiences a currency crisis, it will have an immediate and significant impact on the USA’s ability to acquire goods from manufacturers around the world, as the price for goods will be difficult to determine because of the potential for massive currency fluctuations. If not for yourself, consider stocking some reserve clothing for your kids.

  • Hard Assets in General
    Recently, President Chavez of Venezuela devalued the Bolivar, Venezuela’s currency, and within a few hours residents of the country flocked to stores to spend any physical cash they had on hand or in their bank accounts. When a currency is devalued, either overnight or over a period of months and years, the purchasing power is destroyed. What you could buy today for $50 will cost $100 later. We’re not suggesting you spend all of the cash you have, but take into consideration some of the things you regularly spend money on daily, monthly or yearly. Can you purchase those items now and save them for later use? If so, wouldn’t you rather pay 10% or 20% or even 40% less now than three years from now?

It is important to be prudent with where one might invest their money, as it is impossible to say for certain that an inflationary environment is in our future, and which goods will be affected by increased prices. But all signs point to an eventual devaluation, officially or unofficially, of the US dollar. While the aforementioned "investments" are not traditionally accepted and your financial adviser might think you’ve gone off the deep end, they are worth considering and provide you with another option for protecting your wealth.