I don’t know what the world will look like in the next five years because we are not dealing any longer with free markets but with markets that are distorted by continuous intervention by the government, the world’s central banks and the big private banks. What I do know is that there are ways to protect your future
It does not matter how big or small your total net worth is (from $1,000 to $10,000,000). All that matters is that you take what you have and start to prepare for your future. It is totally up to you. No one else is going to come to your rescue if the world monetary systems start to crumble. I believe the best formula for protection from an uncertain future is to divide up your total net worth (value of everything you own minus what you owe) into different categories:
25 per cent of your total net worth should be in precious metals (gold and silver coins). No matter what happens, gold and silver have been considered money for over 4,000 years and they have never been worthless. If there is a true collapse of the paper money systems in the world, coins will be needed to survive. If there is ever a great inflation, gold and silver will protect you (see step 1 here).
I suggest you start with what is called junk silver. These are 90% silver dimes, quarters and half dollars that were minted in 1963 and prior before the government stopped using silver in coins. Once you have approximately $1,000 in face value of these coins (not the actual value of the silver, but the face value of the coin), move to adding one ounce silver and gold coins and rounds.
Keep adding what you can every week no matter what happens to the market or in your life. If all you can afford to buy this week is one Mercury Dime, just do it. Find a local coin dealer and check their pricing against prices elsewhere and on the Internet to be sure you are getting a competitive price (don’t forget to add in the cost of shipping if you mail order).
25 per cent in cash. This is so that you can take advantage of the dips in the prices of other recommended assets. When everyone is selling, that is the time you want to buy and you will need cash to do that. Of course, if the value of cash starts to decline precipitously, you will want to put more into gold and silver.
25 per cent in fixed rate mortgage real estate. You will need to have a secure home for the coming uncertainty. I do not subscribe to the paid off real estate school because I expect to see high inflation beginning in mid-2012 and continuing for several years. That means that today’s dollars will buy more and are more valuable than tomorrow’s dollars, so a mortgage in today’s dollars make sense because you will be paying it off in inflated dollars tomorrow. I actually believe you should get the largest fixed rate loan you can qualify for. If you want to see the relationship to the buying power of today’s dollars versus tomorrow’s dollars, play with the inflation calculator provided on our home page.
As inflation heats up, interest rates will rise and that is why it is imperative that you do not have an adjustable rate mortgage. If you have one now, immediately call a mortgage broker and refinance as soon as you can. Do not wait on this as interest rates should start to rise in mid 2012 no matter what the FED does.
25 per cent in equities (stocks – not bonds). Unlike owning gold and silver coins which have volatility but less risk, cash which loses value every month we have inflation but also provides us the opportunity to buy on the dips, and real estate which can lose value overnight according to economic conditions but will ultimately rise with inflation, stocks have an inherent risk in that they can become worthless.
To mitigate this risk and still benefit from a rise in the equity markets, investment in solid gold and silver mining companies with a record of production is both a hedge against inflation and usually returns more of a percentage of gains than does the actual metal. Just do not get greedy and buy on margin (buying of stock on borrowed money), or buy options which can expire worthless. Buy only common stock in good, solid, gold and silver companies with good production records. Many are now paying good dividends also.
Do not buy fixed income instruments like bonds. As interest rates rise, the prices of bonds fall. You may be getting your interest payments, but your principal keeps going down as those rates rise. If you want income from your investments, I believe you would be safer receiving dividends from gold and silver common stock.
Additional common stock investment opportunities would be in commodity companies like oil, gas, agriculture, foods – all of those things that civilianization needs to survive. You will need food and oil more than an iPad in a collapsing economy and so will everyone else!
Don’t wait on any of the above allocations. Time is short to prepare. If you do not currently own real estate, then just work on the other three. If you cannot buy equities yet, then just work on gold and silver coins and cash. The important thing is that every time you go to McDonalds and eat that burger, you know that you could have bought a Mercury Dine instead and had lunch at home!
Very interesting points you have noted, appreciate it for putting up.