real estate

This week on The Wealthy You!; Acquisition of defensive-minded assets.

Generally speaking in the world of financial literacy, there is a concept of assets and liabilities. Assets are things that puts money in your pocket or bank account and liabilities are things that take money out of your pocket or bank account. Both are very important and both are needed in ones life. However, acquiring too many liabilities can risk putting poverty in your life. And having just assets with no or little liabilities can lower ones quality of life as well. For example, a household of four, husband and wife with two kids. The husband and wife both work and bring an income for the household, so they become assets for the household. With that income they pay the mortgage and the other bills, buy food and purchase all the things their children would need for school and other pursuits. The money begins to disappear as soon as they earn it. The things that make your money disappear are liabilities, but it isn’t a waste of money because you get something in exchange for it (money is a medium of exchange). Think about heat in the winter, AC in the summer, transportation to get to work, school, the store and anywhere else you want to go. Vacations. Entertainment. They all take money out of your bank account, that is what liabilities do, but you get to enjoy life. All of that would be impossible though without you first becoming a valuable asset for your household. The purpose of this post is to talk about defensive-minded assets.

Defensive-minded assets will help protect your household from your money being eroded by inflation and by getting you in the habit of paying yourself first before you pay your other bills, at least 10%. Defense means using the income you get from a single job to become wealthier and more valuable (Offense will be going from a single income from a job to building and owning your own billion dollar business). This means paying on a mortgage and owning a home versus paying rent for an apartment. After 20 years of paying a mortgage, you get some money back when you sell. Renting the same place for 20 years will get you nothing when the lease ends and you move out. Not even a security deposit, typically. Wealth is about the ownership of assets, when you rent you own nothing. Renting has a purpose for transient folks who plan on moving about every 1-3 or 4 years. Home ownership is more of a long-term play and strategy.

For those who do rent an apartment, the purchase of stocks, bonds, gold and other assets that appreciate over time can be more appropriate. Stocks tend to rise when interest rates are low. As interest rates rise, stocks tend to not rise as much. Interest rates are raised to help fight inflation. The higher inflation goes, the higher the interest rates will need to be. U.S. Treasuries (bonds) are viewed as some of the safest assets in the world. When there is a crisis somewhere in the world or an economic crash of some sorts, people flock to U.S. Treasuries. They are notoriously stable, with minimal wild swings in its price. Purchasing U.S. Treasuries alone, as a way to pay you first with every paycheck, can be a decent strategy for The Wealthy You!-DEFENSE. They also pay a dividend each month, the more bonds you own the higher the dividend. Stocks can be similar, but tends to lean more towards The Wealthy You!-Offense, they follow a completely different road. Speak with a financial advisor to learn more.

Gold and real estate are other defensive-minded assets. There is a website called www.jmbullion.com, where you can purchase gold, silver, platinum and other types of metals. You can get coins and bars from around the world, gold notes, and jewelry. There are gold currency notes that contain 1/1000th to 1/20th Troy oz of pure gold that start at about $3.50 and goes to about $175. And they have 1 oz gold bars that are $2,000. The price of gold is always changing, which means the price of their gold is always changing. Check often and maybe you might find something interesting. Purchasing gold jewelry from a local jewelry store is another way of acquiring gold. Owning real estate instead of paying rent is another strategy of The Wealthy You!-DEFENSE. A portion of each payment you make goes to your house, which you own. That doesn’t happen with renting.

Having your own place to live and rest your head each night, purchasing bonds or U.S. Treasuries, and purchasing gold and other metals, combined with each of your paychecks will help protect your money and wealth from inflation. Getting in the habit of doing this before starting your The Wealthy You!-OFFENSE will allow you to collect billions of dollars’ worth of gold, bonds, stocks, and real estate once your offense does begin.

Next week on The Wealthy You!; making or not making decisions.

Become The Wealthy You!

This week on The Wealthy You!; Inflation protection.

Inflation protection on The Wealthy You! consists of both a defensive and an offensive component. In this segment we will cover the defensive side of protecting yourself from inflation. The offensive side of inflation protection will be covered once we begin the OFFENSE.

According to investopedia.com, money supply is the root of inflation. “An increase in the supply of money is the root of inflation, though this can play out through different mechanisms in the economy.” To keep things simple, the more money that is available to be had by people and citizens in a country, the more they will raise their prices on their products and services to capture more of it. This increase supply of money and the rising prices for products and goods causes the value of the dollar or the currency to drop. The more abundant something is, the lower its value. One American dollar is worth one American dollar in the American economy, there is almost nothing for sale for $1.00 or less in the stores in America today. If you can find something for sale at that price then you are looking at some cheap, mass produced item that is sold everywhere. 100 years ago, the dollar was worth more and could purchase more goods for you and your family, but there were far fewer dollars available 100 years ago. The more the dollar, or whichever currency that is being used, can purchase for you, the stronger the dollar or that currency is. The less it can purchase, the weaker it is.

Inflation can do some funny things like create a nation full of starving-billionaires and create novelty items out of their currency. It is extreme and rare, but it does happen. Hyperinflation is the cause of the starving-billionaires and novelty currency but it rains down destruction on the nation that is experiencing hyperinflation. It helped topple The Weimar Republic in Germany before Hitler and the Nazis rose to power, wheelbarrows full of cash was worth less than the wheelbarrow itself; Hungary experienced it after World War 2 when prices doubled every 15 hours, eventually becoming a part of the Soviet Union; in 1993, prices rose in the Federal Republic of Yugoslavia by 116.5 thousand billion percent, Yugoslavia no longer exists; Zimbabwe printed a $100 trillion Zimbabwean Dollar bill, it failed to purchase a single loaf of bread (starving billionaires), one American dollar was worth more than $100 trillion Zimbabwean dollars. And Venezuela is currently experiencing it as well.

When it comes to protecting yourself from inflation, the idea is to acquire things or assets that rises in value each year as the currency falls in value. When the currency falls, it requires more money to purchase the asset that you own or desire to purchase. In other words, it will take more money to purchase that piece of property you have been eyeing next year than it will need to purchase that same piece of property this year. Once you own that piece of property, it will rise in value each year in response to the inflation rate and you get to keep or own that value which helps protect you from inflation.

Keeping all your money as cash in the bank puts you at the biggest risk and exposure of inflation. Most bank accounts have an interest rate less than one percent but inflation has been 2-3%, money is losing value at a quicker pace than it is gaining value to offset the losses of keeping money in the bank. Keep emergency cash and your daily/monthly spending money in your bank, all excess should be converted to assets that rise in value over time, like real estate, stocks and gold. With DEFENSE, it is about keeping what you earn; purchasing real estate for a house to live in long-term and own will better protect you from inflation versus renting. Rent prices go up each year because there is more money to be had and limited supply of rental stock available. Once you start renting, you will be paying more to continue renting each year just to live there, that is exposure to inflation if your income can’t keep up with rent increases each year. If you borrow a set amount to purchase a home to live in long-term, the amount will be broken down into monthly payments for X amount of years. The payment wont change, but the taxes you pay might go up each year because the value of the home you own rose in value, even if the tax rate stayed the same it is being applied to an asset that is worth more than the year prior, that helps protect from inflation.

On August 15, 1971, Richard Nixon signed into law that removed the gold standard from backing up the U.S. dollar. This effectively created a currency without any legitimate and inherent value backing up the value of the currency, money became a fiat currency and money supply inflated immediately and rapidly shortly after signing that bill into law. When you walk into a bank or credit union you may see a sign or placard that states the deposit is backed and guaranteed by the Full Faith and Credit of the United States Government. That is the government saying your money will be safe because they say so, although there isn’t anything of significant value or that rises in value stored away to protect the value that exists in the currency. Since August 12, 1971, gold has increased from $40.95/ounce to $1,900.10/ounce on February 22, 2022, according to gold.org who started recording gold prices in January of 1970. That is an increase of 46X. In 1971, one US dollar could purchase $6.69 worth of goods in 2021. That is an inflation rate close to 600% or approximately 6X less valuable today than in 1971.

People and society tend to want more over time, converting your dollars into gold and other inflation-protection minded assets will give you more overtime than keeping your money as cash in the bank. Inflation is a very confusing topic and I only covered it briefly with this blog post. If you desire to learn more, then read books on the topic and look up information on the internet. It really is a fascinating topic to learn more about.

Next Week on The Wealthy You!; acquisition of defensive-minded assets

Become The Wealthy You!

https://www.investopedia.com/terms/i/inflation.asp

Click to access annual11b.pdf

https://www.researchgate.net/publication/338538318_Hyperinflation_in_Yugoslavia_An_Example_in_Monetary_History

https://www.gold.org/goldhub/data/gold-prices

https://www.inflationtool.com/us-dollar/1971-to-present-value