Let’s begin this article with an axiom: the U.S dollar is devaluing more and more rapidly, and will someday be replaced by an alternate medium of exchange.
If you disagree with this statement, (and if you do, I’d love to know why!), then holding on to cash or cash equivalents, (savings accounts, bond funds), may be the ideal investment for you.
On the other hand … if, like me, you agree that the U.S. dollar is headed for obsolescence, then you probably wonder what you should be using as an alternate store of value. Note that here I am specifically addressing money we set aside for “a rainy day”, NOT money that we invest to generate a cash flow, or income.
For that purpose I believe the best bang for the buck is still the stock market, or individual tax-free municipal bonds, (not bond funds).
And there are short term rainy day needs, versus long-term rainy day needs. To further muddle up an already foggy subject, money for short term needs should be kept in ….. cash!
“Aargh!”, I can hear you say. “All you’re doing now is confusing me!”
Okay then, let’s start over. We’ll divide our monetary needs into three general categories:
1. Short term. This is money we may need access to in less than 12 months, or no more than three years. Hold you nose and keep this invested in cash, such as an insured savings account at a bank.
2. Medium term. This is money we may need access to in less than 10 years. I’d recommend putting this money in something which potentially won’t devalue as rapidly as the U.S. dollar, or any other fiat currency. (To the best of my knowledge, ALL world currencies these days are “fiat”, which means they are backed by nothing more than the “faith and good will” of the government that is printing them.) My overwhelming choice here is precious metals, silver and gold.
3. Long term. This is money we want to “put to work”. We don’t plan on ever cashing it out, unless forced to take an IRA distribution, or in the case of bonds, the bond matures or is called. Once invested, we don’t worry about the value of the principle, but instead try to maximize the interest or dividends the investment is paying. The majority of my long term money is invested in the stock market, particularly dividend paying mutual funds, but I have a significant percent of it stashed away in tax-free municipal bonds. (Yes, I know the stock market is “rigged”. However, I do not know of a better long term investment.)
What we’re attempting to explore in this article, (if we ever get around to it!), is where to invest that medium term money.
Until fairly recently, gold and silver were on a multi-year winning streak, and anyone and everyone who purchased some gold or silver looked like a genius. Both metals have fallen from their highs, but I still like them, and in fact purchase a small amount of gold and silver every month.
I do this through Silver Saver, where I have automatic monthly transactions scheduled. This enables me to purchase my metals using the “dollar cost averaging” methodology familiar to those of you who invest in stocks.
But now the so called “virtual currencies”, particularly Bitcoin, have become the darlings of the moment. Should we dump our gold and silver and jump on the Bitcoin bandwagon?
If you watch videos such as this one (what exactly did Edison have to do with Bitcoins anyway?), you may quickly respond with a resounding, “YES! Bitcoins are GREAT! I WANT SOME!” Well, slow down just a bit then, because there is much more to the story than that pump-n-dump video.
An immediate counter, (and one I philosophically agree with, despite some sensationalism), is here at Global Research, “Will Digital Currency Replace the US Dollar? Wall Street Strategy to Make Bitcoin the Global Currency“?
The point of the article is that virtual currencies are the ultimate form of fiat money, for by their very nature there is absolutely no material basis to backup their alleged worth.
As Edmund Burke once said, “Those who don’t know history are destined to repeat it.”
To protect myself from the collapse of fiat currency, I prefer to go in the other direction, namely MORE of a physical presence rather than none at all. Maybe I’m just an old fool, who 50 years ago would be sticking his money in a coffee can and burying it in his backyard, but I don’t understand how any currency not backed by some type of commodity held in reserve will ever not dramatically devalue at some point in the future.
But if you disagree, and believe that Bitcoin is your path to prosperity, then please at least take the time to research and understand what you are getting into. A good place to start would be the Bitcoin Forum. (Their take on that nutty video can be found at bitcointalk.org.
Finally, if you agree with me that the U.S. dollar is in trouble, and that Bitcoin is simply the same old smoke-and-mirror fiat currency trick with some digital bells and whistles, but for whatever reason you just don’t like precious metals or other commodities, you could try creating your own mutual fund or ETF, assembling a group of stocks that meet your particular needs.
I’ve never done this, and in fact never even heard of it until I stumbled upon this USA Today Money article “Ask Matt: How to make your own fund or ETF.” I’m not sure how good an investment it would be, but creating your own mutual fund or ETF sounds like fun!
Disclaimer for hungry lawyers and other parasites:
I am not a financial planning professional, nor do I play one on TV. Absolutely NO ONE can predict future economic performance, especially me! You need to do your own research, and make your own decisions, based on your own particular situations and needs.
I am not independently wealthy, but then I don’t work for a Wall Street firm either, so I don’t have the opportunity to steal ….er, uh, grab a commission from my investing advice. I hope it won’t happen, (I DO follow my own advice!), but if you follow my recommendations and lose money, don’t blame me! You’ve been warned, okay!
Originally published by us on FullofKnowledge.