Unsinkable Assets: Your Lifeboats in a Future Crash
As retirement nears for millions of Baby Boomers, they are scrambling for deck chairs on the Titanic.
For about 40 years now I have been watching a major financial disaster developing. Its contributing factors include the shaky financial foundations of Social Security and Medicare, compounded by most Americans’ lack of financial education and entitlement mentality.
When President Franklin D. Roosevelt signed the Social Security Act into law 80 years ago, he said, “We can never insure one hundred percent of the population against one hundred percent of the hazards and vicissitudes of life…we have tried to frame a law which will give some measure of protection to the average citizen and to his family against the loss of a job and against poverty-ridden old age.”
In the decades since then, Social Security has developed into one of the most popular federal programs, though that popularity is tempered by concern over its long-term financial outlook.
Speed and Agility Will Win the Day
But first, let me discuss the iceberg known as Financial Excess, which I believe lies before the SS U.S.A.
In the last three decades, we as a nation have only increased our excesses, accelerated our mistakes, and mismanaged America’s wealth. Turning the ship’s wheel at this time—hard left or hard right—will do no good. It’s too late.
It’s not a good time to be captain of SS U.S.A., or the skipper of SS Big Mutual Fund or SS Pension Plan. In the coming years, I believe big will not be better.
Instead, for many of us, it’s better to be a small, disciplined investor. I believe speed, financial education, and maneuverability will prove to be better than size. It’ll be far better to be in a well-stocked lifeboat than be treading water with millions of pensioners and laid-off workers, many with their party hats still on.
Why so pessimistic? Well, I would rather be known as a realist. Most of us are aware of the problems ahead. Some are:
1. A pervasive entitlement mentality.
It’s not just the poor who are expecting a government hand out. Everyone from senators to farmers and retirees expect it, too. Unfortunately, this problem is not an issue for my generation, the Baby Boomers, but will fall squarely on the shoulders of the children and grandchildren of Baby Boomers.
2. Social Security is a small problem when compared to Medicare.
At the close of the federal government’s 2017 fiscal year, Social Security and Medicare were $65 trillion off-balance-sheet liabilities. For the first time since 1982, it’s reported that this year, the U.S. government will pay out more in Social Security benefits than it collects. Combined trillions in off-balance sheet IOUs to Americans means life or death will be determined by your wallet, not your doctor.
3. A lack of financial education.
Many people do not know such basic realities as:
- A 401(k) is not a retirement plan (it’s a savings plan).
- Bonds aren’t safe.
- Saving money is risky.
- Why mutual funds have such low returns.
- What inflation is.
- Why workers are taxed more than owners.
- Why pensions are disappearing—legally.
People know there’s a problem, yet they continue to do the same things. Today millions of people have trillions of dollars riding in the stock market, their homes, savings plans, and bonds—financial assets that worked in the past but probably won’t work when the SS U.S.A. hits the iceberg.
Investing in Tangible Value
As an investor, I’m investing against the U.S. dollar. Let me be clear: I’m not investing against the U.S.—America is a rich, productive country. But our dollar is toast.
In my opinion, that means getting out of anything else that’s “paper with ink on it”—anything backed by the full faith and confidence of the U.S. government. Although I love real estate, I’m suspicious of any piece of property that doesn’t generate cash flow today. I don’t invest in future appreciation of real estate—not today, at least.
Today, I invest in assets with tangible value, especially assets that go up in price as the dollar’s purchasing power sinks. Today, I have large positions in gold, silver, and oil.
For the small investor, I believe buying silver coins is a safe bet. As the dollar drops, silver will hold its value or go up. I don’t recommend buying coins for numismatic value (rarity). A friend has his son buy one silver dollar a week instead of saving money in the bank. As I write this, that’s worth about $25 a week. He keeps the coins in a safe-deposit box. It’s not big investing—but it’s a great habit.
What Happens to Gold & Silver If the Stock Market Crashes?
In today’s economic environment, it’s better to save silver than to save paper with ink on it, and that includes cash, mutual funds, stocks, and bonds. If it seems unpatriotic to short the dollar and other forms of U.S. paper, then buy a few U.S. silver and gold coins. While I’m bullish on America, I’ve been very bearish on our dollar for years.
Many investors hold gold and silver to hedge against losses. But does this hedge hold up during stock market crashes? It’s a common assumption that gold and silver prices will fall right along with the market.
Last week, the stock market took a tumble, right along with oil prices. Gold however, went up.
Anything can happen when the markets are hit with volatility. To be an educated investor means that you’re prepared for that volatility. That’s why I teach that a diversified portfolio isn’t a portfolio full of mutual funds, ETFs, bonds. A well-diversified portfolio means having investments across all asset classes: real estate, business, commodities and paper assets.
My strategy remains the same as it’s been for years: I bet on real money, which is gold and silver. I also continue to borrow fake money (I call the U.S. dollar fake money) to buy real estate. Since oil and gas are in high demand globally, I also invest in oil and gas production.
Again, I’m not really betting on these assets—I’m primarily betting against the dollar, and the leaders who manage the U.S. economy.
Now you know why I buy more gold and silver every time they drop in value in the current economic environment. What smart investor wouldn’t gladly spend fake money to buy real money?
Play it smart,
Editor, Rich Dad Poor Dad Daily