Is Your Money Safe? Diversify Now!
Be the owner of your portfolio
I've been warning you for months about the importance of having gold in your portfolio, and as expected, gold is reaching historical highs.
My grandfather is one of the best in real estate that I know. He doesn't need an MBA from Harvard or to have worked for JP Morgan's derivatives department. However, he knows the industry, and most importantly, he has a long-term vision, which has made him a lot of money today.
One of the most important investments he made was a house in a European capital in 1980. The house cost the equivalent of €50k. Today, it's worth more than €1.5M. (CAGR. 8.2%).
He always explained to me that when he started working, he earned the equivalent of a few euros per day. These euros, which for many people could represent a lot of work, he preferred to invest in real estate because he knew that in 50 years, that money wouldn't be worth anything.
With gold, something similar happens to what happened with real estate, and for a simple reason. Since the gold standard was abolished, central banks have not stopped borrowing. Let's do the math.
Did you know that 22% of all U.S. Dollars were created in 2020 alone? Read that again. 1/5th of all U.S. Dollars were created in 2020.
On December 2020, there were $15.4 trillion dollars in the world. At today's date, there are $19.7 trillion dollars. In layman's terms, this is described as printing money. But in practice, the Fed creates digital dollars to buy government bonds in the secondary market, known as quantitative easing.
The federal funds rate was at historical lows (pretty much at zero) from the massive injection of cash into the bond market. Basically, the majority of the new money pumped into the system went directly into the bond market.
But how can you blame them? Federal debt levels have skyrocketed — now over $27 trillion — up from $23 trillion at the beginning of 2020.
Assuming the interest payment on the $27 trillion of Federal debt is 0.07%, this implies the yearly interest payment is $18.9 billion. But what if we assumed the interest rate started to move? We mapped the potential annual interest obligations out below:
1% - $270 billion
2% - $540 billion
3% - $810 billion
4% - $1.08 trillion → We are here
5% - $1.35 trillion
6% - $1.62 trillion
7% - $1.89 trillion
8% - $2.16 trillion
9% - $2.43 trillion
10% - $2.70 trillion
But what if inflation gets out of control, bonds are sold off and interest rates move back to the levels we saw in the 80s? Annual interest payable on $27 trillion in debt would be in the trillion-dollar range.
But, but, but Federal Reserve economists say inflation will be "transitory."
The importance of being the owner of things
When I talk about cryptocurrencies, what I like most about them is that I know I'm the owner of them. I know what my money means within the system, and it allows me to have a long-term vision with them.
Many times I think about the indexed funds I have and say, "Is my money as safe as I think it is?" What if my bank tells me they don't really have those funds bought? What if the fund manager tells me the same? What if the custodian goes bankrupt? What if the government where those funds are deposited decides to confiscate them? What if your own government decides to do the same?
Have you ever stopped to think about all that? And we're talking about very stable situations.
That's why many times my conviction is with crypto. I know where they are, I'm the owner, and I'm not worried about the answers to all of the above.
The same could happen with physical gold or real estate.
Just reflect on all of this and see the importance of an asymmetric portfolio.
So, what does all of this mean for the average person who's not a finance expert? It means that with the ongoing economic uncertainty, it's crucial to have a diversified portfolio that includes assets like gold, real estate, and even cryptocurrencies. These assets have historically held their value, even during times of economic crisis.
For example, during the 2008 financial crisis, the price of gold increased significantly, while the value of stocks and other traditional assets plummeted. Similarly, real estate has proven to be a solid investment over the long-term, and owning a physical property provides a sense of security that other assets cannot.
And now, with cryptocurrencies, people have the opportunity to invest in an entirely new asset class that offers many of the same benefits as gold and real estate, such as decentralization and the ability to be your own custodian.
Of course, it's important to note that investing in any asset carries risk, and it's essential to do your research and understand the potential downsides as well. But with the ongoing economic uncertainty and the potential for inflation and currency devaluation, having a diversified portfolio that includes alternative assets like gold, real estate, and cryptocurrencies is becoming more important than ever.
In conclusion, investing in gold, real estate, and cryptocurrencies may not be for everyone, but it's important to consider them as part of a diversified portfolio. As my grandfather always said, having a long-term vision and investing in assets that hold their value over time is crucial to building wealth and financial security. So, take some time to reflect on your portfolio and consider adding some alternative assets to the mix. You never know when they might come in handy.