We are really in a very interesting spot economically. Currently the opportunities abound to create wealth. Property prices are down, only starting to show some increase in price. Ideal time to buy bargains. World stock exchanges are on a knife edge. Every time I open my stock broker’s account it seems as if there is only one way – down. Interest rates are low. So how do you invest?
My sister, who retires at the end of the year, asked me what I think she should do with her money. And I replied – Money Market! She needs an income and to protect the capital. Any investment where she can invest to get an income, will tie her in at a very low interest rate. Remember, government bonds are inversely directly correlated to the interest rate. In other words, if interest rates are low, the capital value is high. And vice versa. If you want to know more about this, download Investments and Investing, my FREE e-book under Free Stuff.
It just does not make sense to tie up your money and income, at the bottom of the interest rate cycle.
I am very scared of the stock market, at the moment. I think I mentioned it before, but in 1929 and 1969 (I was only alive in 1969, but to stupid to know anything) the real drop in the market came later. It was almost as if there was a detrimental blow that took the markets into ICU, then some improvement and then a final death spasm. I am afraid that history will repeat itself. That is why we need to hedge our stock market positions.
The problem is, obviously a lot of my sister’s investments are in stock market related instruments with the major insurance companies. So there is a double whammy – interest rates are low AND her capital has lost a lot of value. It is not a good situation! And I don’t really have a solution! And it is not as if she can sit back and wait for a recovery!
The tragedy in this case is – she encouraged me to buy my first property! She had a number of properties which she bought and sold. And the other day I thought about it and realised – if she kept ALL her properties, she would be making enough income for herself and me!
Now she pays a hefty price for the mistakes of the past – perhaps it was not a mistake, but lack of knowledge and insight!
I listened to the radio this morning and heard about the gold price being at record levels. It is something to consider.
Gold is not an investment, since gold does not pay interest, rent or dividends. Gold is a protector of wealth, value or purchasing power.
The first question we should ask is WHO is buying gold to the extend that the price is at record levels? The answer is: people with money who can afford to do it. This will include reserve banks or central banks of the world. In other words, it is people who have made money and who know about money. People we can take note of and learn from. They are not a bunch of “palookas.”
The next question would be: why would very knowledgable and experienced people be prepared to buy gold up to record levels?
The answer is simply: because they see their wealth, their value, their purchasing power threatened! All through history gold was always considered a safe-haven in times of turmoil and threat. Gold may not give an income, but it does protect currency against inflation and devaluation.
The next question is: can we identify the threat? I think I can see at least some of it. Governements across the world has solved the “so-called” debt crisis with MORE debt. What is the implication? Well, what happens if you (I mean you, real honest to goodness real life human being) have more debt than you can service? Bad things happen. And now to solve the problem and to save yourself from the bad things, you borrow more money! Is the hole deeper or shallower?
In terms of countries, what does more debt imply about the currency? There are more currency. I don’t know if you really read my series on earning what you are worth? It boils down to this: you can only increase your worth by producing more or better. The same applies to countries (which is why entrepreneurs are so important). So the question is: I have more currency, but do I produce more or better? If the answer is not: “YES”, then it means the currency is loosing value hand-over-fist! Which means that paper money is slowly, but surely, losing its value and soon will not be worth the paper it is printed on.
The people in the know understand this and buys gold.
For you and me, let me speak for myself, for me it means the following: I should have as little cash as possible. I must have as much tangible assets as possible. I have to be wary of the stock markets, because they react negatively to a situation like this. In the long run they catch up, but short-term we can expect volatility. I must consider buying Kruger Rands – very tangible and very tradeble gold coins.
In this scenario debt (as long as I can service it!!!!) is not such a bad thing, if I use it to buy productive assets – that increases in value and renders a cash flow.
BUT ABOVE ALL – don’t act on this, or just any other advice or information, see that you get the best advisors. I would like to have investment advice from somebody who buys gold!
If you do what the masses do, you will end up with the masses!