We work hard for the money we earn. Most of it goes to taking care of our basic needs, keeping us comfortable, and giving us some pleasure in this wonderful life. What we manage to set aside we either invest, with the intention of generating a return, or save, with the intention of preserving that wealth for the future.
If you are going to set wealth aside for the future, why wouldn’t you want to generate a return on that wealth? Why wouldn’t you want to save capital to preserve wealth and generate a return on that capital at the same time? If saving and investing are different, why would anyone want to save at all?
The key characteristic difference between vehicles for saving and investing is risk. In most cases, the greater opportunity for return, the greater the risk. While there will always be exceptions, they will never last long once discovered. This is a clear principle to keep in mind.
Preserve Wealth with Hard Assets
One important measure of a vehicle’s ability to preserve wealth the stability of its exchange rate against other stable goods over time. In rare times throughout history paper money was directly linked to stable assets like gold. In contrast, “Today’s paper money cannot be redeemed at any fixed rate for anything” (from The Alpha Strategy).
Paper money is, “Merely a claim on real wealth, redeemable at a floating rate…” (also from The Alpha Strategy). Until the day returns when paper money is redeemable at a fixed rate for stable assets, the best way to preserve wealth is to buy and hold the assets directly.
Four Options for Preserving Wealth
History shows that every paper currency will eventually be worthless. Hard assets will always at least be worth something. There are many goods that can be counted on as a store of wealth.
Consider these four options for preserving your wealth:
- Agricultural Goods. The first, and perhaps most important, store of wealth is things that are needed to sustain life. The most direct way to do this is to stock up on food items that have long shelf life. A more advance method is farming and raising livestock. (See You Can Farm and other great books by Joel Salatin.)An indirect way is to buy futures in agricultural products. The downside to investing in futures is the large capital requirement—most contracts start around $25,000. (See Hot Commodities, by renowned investor and multi-millionaire, Jim Rogers.)
- Raw Energy. Similar to agricultural goods, energy is required to sustain life. If you have the space and ability, a wood-burning furnace and pile of wood is a fantastic way to store energy.In most cases, it is impractical to physically store large quantities of energy. The best way is to buy futures in energy commodities just like in agriculture. (Hot Commodities covers this topic as well.)
- Land and Real Estate. Another excellent option to preserve wealth is buying land and Real Estate. Unlike agricultural goods that spoil, and energy goods that will be used up, land is not going anywhere. People will always need a place to call home or do business. Productive land that can be used to farm or raise livestock has the additional benefit of contributing to the first store of wealth above.The downside to land and Real Estate is the degree government has distorted the market. From complex zoning, taxing, and permitting of properties, to propping up values by encouraging more buyers into the market than would otherwise exist, land and Real Estate is not as straightforward as it once was. That is not to say you should stay away from it, but just that you need to be careful.
- Precious Metals. The most timeless and convenient way to preserve wealth is to own gold and silver. For thousands of years, these precious metals proved themselves as reliable stores of value. Their prices fluctuate wildly against paper currencies, but remain relatively stable over the long-term against other hard assets (like those listed above).It is best to own physical gold or silver. Find a local dealer or use an online service like Hard Asset Alliance where you can have the metals delivered to you, or pay a small premium to have them stored securely in a vault. Another option is to own stock in audited trusts that hold physical metals like CEF, PHYS, PSLV, and SPPP (the maintenance fees in these trust are slightly more expensive then paying for storage of your own metal with Hard Asset Alliance).
However you decide to preserve your wealth, don’t wait to get started. It’s easy to say, “I’ll get to that tomorrow,” but so often we end up saying the same thing tomorrow.
Begin taking whatever small steps you can make towards preserving wealth today.
What is your biggest challenge in getting started with investing?