Many professionals believe that the world is entering into an unprecedented financial crisis, perhaps the worst ever seen. Not only could stocks fall, but bonds, commodities, and even gold could follow them.
The reason for this has to do with the changing structure of the economy. Unlike the catastrophes of the past, today’s economic actors are operating under massive debts which they will struggle to pay back. In all likelihood, everyone is going to lose wealth and purchasing power, it’s just a question of how much.
In an environment like this, it’s not clear what people should do with their money. Should they keep it in financial markets and hope that the Federal reserve plays ball? Or should they sell everything and wait for normality to return?
Strategies For Maintaining Wealth
In the past, either of these strategies was fair game. Historically, some people would choose to keep assets locked in the markets while others would prefer the safe haven of cash.
In today’s economy, though, that’s not possible. Inflation is at record levels, making holding cash a losing game. Even if you stuff it under your mattress for just one year, it could lose 10 percent of its value. And stocks look like they are headed for a bigger crash than they were at the height of the dot-com bubble.
Given that all of the traditional assets seem to be bad bets, where can people actually put their money?
The short answer is “into anything that isn’t money, a certificate, or a piece of paper describing ownership.”
Promising Assets
But what does this mean in practice? In reality, it means getting rid of items in your portfolio with counterparty risk and buying real goods.
In an inflationary environment where the markets are crashing, this makes sense. Over the next year, the value of real goods in the economy will go up. Therefore, holding them today should yield a return in a year’s time.
Plus, even if they don’t go up in price, you can still use them. You can eat a can of baked beans, for instance, but you can’t get good nutrition from munching on stock certificates.
You might also want to consider looking for new homes for sale so you can easily change your location if unrest develops. Imagine what would happen in your community if the food or energy ran out. You could find yourself in the midst of a crisis. Having more than one property you can go to brings all kinds of benefits.
Other Wealth Preservation Strategies
What other strategies can you use?
One option is to look for uncorrelated assets. These don’t go up and down with the rest of the market. Instead, they move as a counterweight, sometimes gaining while other assets are losing. Traditionally, bonds fulfil this role. But they are having a dreadful year, perhaps the worst on record, and falling with equities at the same time. Today, alternatives are things like art, crypto, self-storage units, and even physical commodities, like wheat.
Before making any significant decisions with your money, ensure that you speak to a financial advisor.