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Don’t Ask your Financial Advisor about Tangible Assets

Don't Ask your Financial Advisor about Tangible Assets

A few days ago I was reading an article about investing in antiques.  At the end of the article, the author said that you should ask your financial advisor whether antiques are a good fit for your portfolio.  This is such poor advice that I just about fell out of my chair.

There are some questions that are completely OK to ask your financial advisor.  For example, it would be appropriate to enquire if you have enough bond exposure in your portfolio or if you are in a position to participate in stock IPOs.  But there are some questions you should absolutely, positively never ask your financial advisor.  And many of these forbidden questions revolve around investing in tangible assets.

There is a good reason for my trepidation.  Many financial advisors make their money via commissions on transactions executed or fees on assets under management.  Both of these compensation schemes require the advisor to maximize your exposure to traditional financial assets.

In the former case, the advisor only makes money when you execute a trade – usually a stock, bond or ETF purchase – using funds under his auspices.  This is, incidentally, one of the worst ways a financial advisor can be remunerated because it encourages churn, or excessive trading, in your account.  Load mutual funds that are subject to an up-front or deferred sales commission also fall into this category.

Financial advisors that receive money based on management fees are better than those that are commission based, but still may not give you completely unbiased advice.  Their management fees are calculated using assets under management.  But the term “management” here more or less applies only to brokerage assets.

If you should withdraw a significant sum of money from your brokerage account for any purpose – even to buy high quality alternative assets like fine art, antiques, precious metals or even real estate – it will reduce the assets under your advisor’s management.  This will have the effect of reducing your advisor’s future management fees.  A lot of financial advisors, even those who are otherwise honest, will find it difficult to recommend a savvy investment in tangible assets that will inevitably decrease their compensation.

But the real reason not to ask your financial advisor about tangible assets is that vanishingly few of them have any knowledge of the topic!  Most financial advisors start out as employees of large financial firms like Ameriprise Financial, Edward Jones or Charles Schwab.  These companies typically have a multi-month training regime in place.  This might sound like ample training time at first glance, but that perception is incorrect.

First, a new hire at one these gigantic companies must get the appropriate credentials – usually a series 7 and 63 or 66 license – by passing industry tests.  Once that is accomplished, the next thing a company wants its freshly minted advisors to do is sell, sell, sell!  I should know.  I trained as a financial advisor at a large firm.  Among my peers hired fresh off the street were a used-car salesman who had very flexible morals and a pretty red-head who was dumb as a rock.  They were typical of the caliber of candidate one often encounters in these programs.

If my revelations are making you a bit queasy about financial advisors, then good.  The licensing tests aren’t that hard to pass and the primary skill necessary in the field is the ability to weather rejection well.  Notice that I have mentioned nothing about intelligence, ethics or enthusiasm.  That is because most retail wealth management companies simply don’t care about any of those traits in the least.

Now, I am oversimplifying the retail financial industry slightly.  There are some genuinely good financial advisors out there.  They usually possess many years experience, having paid their dues at the large, meat-grinder firms.  Once they have built up a significant number of clients, they often leave their parent company and go into business for themselves.  And, perhaps most importantly, they usually bill via an hourly rate or a flat fee.  This means their advice is truly independent, or at least as independent as is reasonably possible in an industry that is infamous for its corruption.

Of course, even very experienced financial advisors still usually know next to nothing about tangible assets.  Most wouldn’t know the difference between an investment grade bronze Art Deco plaque and a banana. At best, they may be vaguely aware of the traditional role of gold and silver bullion in hedging a paper asset portfolio against depreciating fiat currencies.  This, however, is a very low bar to require from someone advising you on your money.

Precious metals are the gateway asset to the land of tangible investments.  Although gold and silver are good, far more tantalizingly exotic tangible assets lay beyond.  However, a certain amount of specialized knowledge is needed to be able to intelligently dive into those more obscure tangible investments.  So don’t bother to ask your financial advisor for his opinion on investment quality antiques or other tangible assets.  Chances are he is not qualified to hold an opinion.

The World’s Strongest Currency during the 20th Century

The World's Strongest Currency during the 20th Century

Not all national currencies are created equal.  Some have endured relatively intact over the course of the last 100 years, while others have been devalued into irrelevance.  So what was the strongest currency of the 20th century?

Before we get to the answer, I think it is important to cover the methodologies I’ve used to produce my results.  All performance is measured relative to the U.S. dollar, with the 1920s to very early 1930s as the starting point.  All return calculations also take into account currency conversions and revaluations.

Reviewing a little bit of monetary history is also in order.  The 1920s and early 1930s was the last time the gold standard was widely used by many nations.  Although World War I (1914 – 1918) forced many European nations to temporarily abandon their currency pegs to gold, most reestablished some form of gold convertibility during the prosperous 1920s.

The Great Depression of the 1930s irrevocably changed gold’s relationship to money, however.  As the global economic crisis deepened, nation after nation was forced to permanently suspend its currency’s gold convertibility.  Great Britain, one of the leading economic and military powers of the time, abandoned the gold standard in 1931.  The United States broke its traditional peg of $20.67 per troy ounce of gold in 1933.  The last nation to surrender its gold standard in the face of the economic maelstrom was the Netherlands in late 1936.

Whatever impetus there may have been to reestablish national currency links to gold was permanently extinguished by the calamity of World War II.  Instead, the monetary ecosystem was realigned around the (slightly devalued) U.S. dollar.

This was the venerable Bretton Woods system.  Under this regime foreign currencies were pegged to the U.S. dollar, which was convertible into gold at $35 a troy ounce.  The U.S. dollar was not a true gold standard during this time, though, as only foreign central banks could redeem their dollars for gold.  Although the Bretton Woods system collapsed in 1971, it ushered in the dollar’s 70 year long (and counting) domination of the global monetary system.

But this leads us to our primary question.  What was the world’s strongest currency over the last 100 odd years?  Was any nation’s currency able to outperform the ubiquitous U.S. dollar during this period?  Drum roll please!

And the answer is…the Swiss franc!  Yes, the Swiss franc has been the strongest currency of the 20th century (and early 21st century) by far!  Relative to the U.S. dollar, the Swiss franc has appreciated by some 425% between the 1920s and 2017.  However, I should note that this performance was truly exceptional.

No other nation’s currency came close to being as strong as the Swiss franc.  This, undoubtedly, is at least partially attributable to the fact that Swiss law required the franc to have a minimum 40% gold backing.  This deference to the traditional gold standard was finally repealed by referendum in the year 2000.

The only other national currency that has been stronger than the U.S. dollar over the last century is the (now obsolete) Dutch guilder.  The Netherlands has been respected for its prudent, level-headed monetary management for centuries.  As a result, although not the strongest currency of the 20th century, the Dutch guilder appreciated against the U.S. dollar by about 22% between the 1920s and 2017.  The Dutch guilder was retired as a currency unit by the introduction of the euro in 1999.

With the exception of the Swiss franc and Dutch guilder, the U.S. dollar has been the world’s strongest currency since the early 20th century.  This is perhaps unsurprising considering the dollar’s excellent reputation for stability.  In addition, the U.S. dollar enjoys nearly universal acceptance for settling international transactions.  In my opinion, the U.S. dollar will continue to remain strong for the foreseeable future.

The British pound, on the other hand, has not held up nearly so well, depreciating by 74% versus the dollar.  Great Britain’s former colonies are a mixed bag.  The Australian dollar has lost some 69% of its value against the U.S. dollar since the 1920s.  The South African rand has been a real laggard, depreciating by almost 97%.  Only the Canadian dollar has done the Queen proud, devaluing by a mere 25% versus the U.S. dollar.

The Scandinavian countries deserve an honorable mention in the world’s strongest currency competition.  The Danish krone (-46%), Norwegian krone (-56%) and Swedish krona (-57%) all only lost about half of their value versus the U.S. dollar.  It isn’t easy keeping pace with the world’s reserve currency.

Not every currency can be in the running for the world’s strongest currency, though.  Let’s instead take a look at how some of the other major nations’ currencies managed versus the dollar.  And wow, do things turn ugly in a hurry.

The German mark was effectively wiped out twice during the 20th century.  The first of these currency extinction events was the infamous Weimar republic hyperinflation of the early 1920s.  A mere 20 years later, the German reichsmark collapsed in value at the end of World War II.

Life was also hard for anyone who dared to save in Russian rubles under the Soviet regime.  The Soviet authorities orchestrated a steady succession of devaluations taking place in 1922, 1923, 1924, 1947, 1961 and 1991.  Its successor state, the Russian Republic, maintained the tradition with a major currency collapse in 1998.  Needless to say, the Russian ruble has depreciated by about 100% compared to the U.S. dollar over the course of the 20th century.

The Japanese yen, although one of the world’s most important currencies today, hasn’t fared so well against the dollar historically.  Since the 1920s, the yen has lost about 98% of its value.  Most of this decline occurred during and immediately following World War II.  It seems the only thing worse for a nation’s currency than fighting an expensive war is losing one.

The French franc has also done rather poorly, losing around 96% of its value compared to the U.S. dollar since the 1920s.  Mexico, on the other hand, only slightly lags the French in the world’s strongest currency race.  The Mexican peso has plummeted by 99.99% versus the dollar, a hair’s breadth from joining the ignoble German mark and Russian ruble.  And we won’t even talk about the atrocious Venezuelan bolivar, which, ironically, used to be the strongest of the Latin American currencies during the mid 20th century.

While it is easy to view these currencies’ performance as laughably inferior, it is actually more the norm than the exception.  The U.S. dollar, in contrast, has been enormously resilient over the decades.  Of course, these measurements are all relative.

In reality, all fiat currencies – including the U.S. dollar – are inappropriate vehicles for long term savings.  As a point of comparison, since the 1920s silver has appreciated versus the U.S. dollar by over 2,800%.  Gold did even better, outperforming the world’s third strongest currency by nearly 6,000%.

This is one of the reasons I advocate investing in tangible assets such as fine art and antiques.  Unlike fiat currencies, which can be printed at the whim of corrupt or incompetent central bankers, rare and desirable art and antiques are strictly limited in supply.  The Swiss franc, Dutch guilder and U.S. dollar may have been the world’s strongest currencies over the course of the 20th century, but they still pale in comparison to investment grade tangible assets.

Buy Tangible Investments to Avoid the Financial Abyss

Buy Tangible Investments to Avoid the Financial Abyss

The major market indices – the S&P 500, the NASDAQ and the Dow Jones Industrials – have been making a series of continuous new highs for many weeks in a row now.  This is how bubbles end.  A seemingly endless orgy of unrestrained greed and rampant speculation eventually collapses into the financial abyss.  But for now, shareholders must be feeling absolutely giddy.

There is nothing more satisfying than getting rich, except perhaps getting rich effortlessly.  And if the global financial market bubble has done nothing else, it has made people falsely believe they are suddenly becoming wealthy.

The truth of the matter is somewhat less sanguine.  As of the summer of 2017, equities sit at valuations that are some of the most extreme in history.  Today’s stock market is in the company of illustrious market bubbles of the past, including the 1929 peak that ushered in the Great Depression, the 2000 peak that heralded the end of the dot-com bubble and the Japanese 1989 peak that kicked off 25 years (and counting) of economic stagnation for the island nation.

I believe that we will be forced to give up these silly ideas of perpetual, unearned financial wealth in just a few short years.  This isn’t a very popular opinion to hold at the current time.  People get angry when you tell them that their imagined future life of leisure funded by a continuously rising stock market is destined to never happen.

But, regardless of what market speculators, retirees and other investors desperately want, the dustbin of history calls.  The paper gains that almost all market participants eagerly hoard right now will undoubtedly be rudely torn away soon enough.

And the size of those losses is likely to be absolutely staggering.  The equity market drawdown necessary to return the S&P 500 to even historically average valuations is anywhere from 50% to 60% right now.  That translates into losses of at least $12 trillion.  And that scenario only envisions a return to average valuations, not undervaluation.  Even so, absolutely no one is prepared for a decline of that magnitude.

Instead, many market participants foolishly believe they’ll be able to outrun every other speculator to the exit when things start to go bad.  Neither math nor history is on their side in this particular conceit.  Rather, I find it much more likely that nearly everyone romping in the overvalued equity markets today will take losses that are somewhere between harrowing and obscene.

Bonds are no safe havens either.  Right now the BofA Merrill Lynch U.S. Corporate BBB bond index has a miserly yield of around 3.5%.  This doesn’t seem very enticing, particularly when one considers that corporate America is more leveraged now than at any other time in recent memory.  These two elements – low bond yields and high corporate leverage – are not a combination conducive to healthy future returns.

However, there is at least one relatively safe asset class – tangible investments.  I strongly believe that precious metals, art and antiques will perform admirably in the coming financial debacle.  It is one of the reasons I started the Antique Sage website.  I want to provide people with the knowledge and skills they will need in order to safely invest in these alternative asset classes.

Tangible investments are the antithesis of paper assets.  They are solid, real and can be physically held in your hands.  They are not vague promises of future payment.  Nor are they a theoretical ownership interest in a company that will promptly cease to exist if it should lose capital market access.  Tangible investments cannot be cancelled in a corporate bankruptcy or printed by a profligate central bank.

Tangible investments are often historical and invariably beautiful.  They have been recognized as objects of desire by the wealthiest and most cultured members of society for hundreds of years.  They can be as varied as a bar of gold, a Renaissance painting by an Old Master or an Edwardian diamond brooch.  But they are all – without exception – rare, precious and undervalued compared to the tsunami of questionable paper assets that has engulfed the world.

I encourage you to take some time and browse the articles on this website.  I hope they will open your eyes to the opportunities present in tangible investments that you may have never considered before.  If it were truly possible for humanity to get rich solely via compound interest on paper assets, our ancestors would have done it long ago.

There are dark financial storm clouds gathering.  The dizzying ascent of the stock market is impossibly steep.  As the old saying goes, “If it looks too good to be true, it probably is.”  Paper assets are the ultimate sucker’s bet right now.  They are priced so high that an investor can’t possibly walk away whole unless he is either unbelievably skilled or unreasonably lucky.  Tangible investments, on the contrary, are priced as honest assets in an honest market.  And that is rather refreshing.

Art and Antiques Make Your Money Work Harder

Art and Antiques Make Your Money Work Harder

As I’ve grown older and wiser, one thing I have discovered is that if you want to be wealthy, it is imperative to make your money work harder.  Now, this might sound like an empty platitude at first.  Make your money work harder?  What does that even mean?

But I think it has a very specific definition.  I believe that making your money work harder means having it perform more than one function at a time.  A prime example of this maxim is owning your own home.

If you don’t own your own house, you have to rent.  You pay many hundreds – if not thousands – of dollars every month to a landlord in order to have a place to live.  But if you buy a house, you not only gain a place to live, but you also have an asset that potentially appreciates in value over time.

When you buy a house to live in, your money works harder for you.  It provides you much needed shelter on the one hand, along with a tangible asset.  Your money, in effect, does double duty.

Of course, this situation assumes that the house you’re looking to buy is priced at rental equivalence to the apartment you rent.  If the house is grossly overpriced, then your money isn’t working harder anymore.  It defeats the purpose.

But, in theory, we would want all our household expenditures to feature this dual benefit of providing a needed service while simultaneously accruing value.  However, this isn’t possible in every situation, like the food we eat.  It simply isn’t possible to have your physical cake and eat it too.  Sometimes when you spend a dollar, it is consumed and gone forever.

However, there are a surprising number of situations in which we can make our money work harder.  Insurance is one of these circumstances.  Most of us need to buy insurance to protect ourselves and our loved one.  We need auto insurance, homeowners or renters insurance and sometimes life insurance.

We normally think of insurance premiums as spent money.  It is flushed down the rat hole of endless monthly expenditures.  If you don’t make an insurance claim, then what good was that expense?

But did you know that there are entities called mutual insurance companies?  These are insurance companies that are not owned by shareholders, but by their policy holders.  Every time you pay a monthly policy premium, you, along with every other policy holder, actually accrue ownership in the company.

Although it is a well kept secret, the same thing is true in the banking industry as well.  Credit unions are banks that are owned by their depositors.  And while they do not seek to maximize financial profit, these organizations often benefit their depositors by offering lower rates on loans and higher return on savings products.  Once again, establishing an account at your local credit union can help your money work harder for you.

You can also make your money work harder in your brokerage account.  One strategy I’m very fond of is writing covered calls.  This is when you buy stock in a company and then sell a call option against it.  This allows you to retain all the benefits of owning the stock, including dividends and voting rights, while simultaneously receiving extra income from selling the call option.

Of course, nobody will give you something for nothing.  Selling or writing a call option caps your potential upside profit on the stock as it can be “called” away from you at a fixed price in the future.  But regardless, writing covered calls is an excellent, time-honored way to make your money do double duty.  It allows you stock ownership while simultaneously providing you extra income.

However, perhaps the most overlooked way of making your money work harder is by purchasing art and antiques.  These compellingly beautiful items have been avidly collected by the wealthy and sophisticated for centuries.  And for good reason too.  Art and antiques occupy both a decorative, aesthetic role, as well as an important financial niche.

I believe art and antiques are one of the best opportunities for the average person to make his money work harder for him.  Most people decorate their houses in order to provide visual interest and also express some of their individuality.  Art and antiques, with their unique combination of luxury materials, historical importance and unrivaled beauty, are perfectly positioned to fill this need.

Think about it.  You have that blank space over your couch or the fireplace mantle or on top of the bookcase that you’ve been meaning to fill.  A piece of fine art or an elegant antique would not only look good, but could also be a lucrative investment.  Why dribble your money away on a mass produced piece of mediocre décor from Crate & Barrel or Pottery Barn when you could be buying the real thing for not much more?

Have you ever wanted a leaf from a medieval illuminated manuscript hanging on your wall?  It can be yours for a few hundred dollars.  Interested in a 19th century Edo era Japanese lacquerware box?  That can be arranged for less than you think.  Or maybe you crave a vintage mechanical Breitling chronograph watch for your wrist?  They are surprisingly affordable.  Even a vintage engagement ring can be a great investment as well as a symbol of eternal love.

Art and antiques come in a dizzying array of styles, with something to fit every budget and taste.  Best of all, they have two dimensions of value.  On the one hand they are superbly decorative and, when carefully chosen, reflect our unique personalities.  But they can also appreciate in value over long periods of time.  In fact, it isn’t unusual for fine antiques to increase in value reliably for decades or even centuries!  Investing in art or antiques makes your money work harder for you.  And in a world where every penny counts, that benefit is tremendously valuable.