A common nugget of modern-day investing wisdom is that investors should exclusively buy solid, dividend paying companies and then sit back and relax.  According to this thinking, purchasing dividend paying stocks that have been around for many decades ensures that the holder will receive a fair return on his money.

Every time I hear this advice dispensed (which is a lot), I quietly wonder to myself what exactly makes a company “solid”.  Many people conflate companies that have been paying dividends for many years with the idea of corporate solidity.  Nowhere is this idea more evident than with the so-called Dividend Aristocrats – S&P 500 firms that have raised their dividends for the last 25 years in a row or longer.

Of course, this glib analysis often mistakes historical happenstance for solid fundamentals.  As an example, I think it is instructive to take a look at what happened to an entire cohort of Dividend Aristocrats during the financial crisis of 2008-2009.

Of the 59 companies that were members of this elite group of “solid” companies heading into the financial crisis, only 36 remained five years later.  Those 23 Dividend Aristocrat dropouts represent a harrowing 40% failure rate.

And the reason all of those once venerable companies came crashing down to earth can be summed up in one word – debt!  A large number of the fallen Dividend Aristocrats were financial firms that were absolutely drowning in debt.  Most of the rest that cut their dividends also had excessive debt.

Unfortunately for investors, the problem of excessive corporate debt isn’t exclusive to financial companies or dividend aristocrats.  Household-names such as Coca-Cola, IBM, Home Depot and Verizon are all significantly over-levered at the moment.  And while corporate leverage has done wonders for the earnings and share price of these companies over the last few years, it is certain to hobble them when the next financial downturn arrives.

So buying “solid, dividend paying” stocks seems like sheer insanity to me, if for no other reason than that there are basically no good companies left to buy.  Over the past decade of ultra-low interest rates, corporate management simply couldn’t resist the temptation to borrow gobs of money in order to buy back shares and make ill-advised acquisitions.

As a result, many of today’s seemingly stalwart companies will undoubtedly hit the wall in another financial crisis, perhaps even a mild one.

Regrettably, many asset classes other than stocks also suffer from debt-related issues.  Real estate, for example, is usually purchased via a mortgage.  That leaves almost all commercial, residential and industrial real estate heavily levered, which puts it at considerable risk in the case of an economic downturn.  In such a situation, it would be foolhardy to expect real estate prices to maintain their currently elevated levels.

Even bonds and other fixed income instruments are weakened by the oversaturation of debt in the economy.  When debt levels are low, the chances that a company will be able to make good on its bond obligations are high.  But when debt levels are out of control, like they are at the present, it dramatically increases the possibility that corporate default will be the only viable solution.

So if stocks, bonds and real estate are all destined for a painful future, what kind of assets do we want to invest in?  Well, in my opinion, we want debt free assets.  These are assets that have no debt liability in their financial structure (so stocks and bonds are largely out).  It also excludes assets that are primarily purchased via debt financing (like real estate).

Once you start looking for debt free assets you will quickly discover that there are very few out there, which makes them all the more desirable.  The largest category of debt free assets, as far as I can tell, is tangible assets, like precious metals, fine art and antiques.  These assets have been used as a store of wealth by the rich and privileged for thousands of years, ensuring capital preservation across countless generations.

These perennially overlooked hard assets sit completely outside the mainstream financial system.  As a result, they have not been sliced and diced by Wall Street the way so many other formerly staid investments have been.

This is a good thing, by the way.  It means that these debt free assets have avoided the unholy machinations of Ivy League MBAs, hedge fund con men and other Wall Street operators.

It also means that you can pick up desirable vintage fountain pens for just $200.  Or you can buy genuine World War II era U.S. military insignia for only $75.  Or you can purchase an award-winning, hand-made woodblock print for a very reasonable $250.

Of course, if antiques and fine art don’t impress you, you can always make an investment in the oldest and most recognized of debt free assets – precious metal bullion.  Gold bullion coins like American Eagles, American Buffalos, Canadian Maples Leafs and Australian Kangaroos are all great choices.  Silver bullion coins such as American Eagles, Canadian Maple Leafs, Chinese Pandas and Australian Kookaburras work for investors who want to spend less money.  Even platinum coins and bullion bars are readily available for those with more exotic tastes.

Whatever debt free assets you choose to buy, be secure in the knowledge that they can never default, go into receivership or be cancelled.  When you buy debt free assets, they are yours forever, until you sell them at a time and place of your choosing.  And in today’s world of over-levered corporate behemoths, that insight is priceless.

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One thing I have learned in life is that people become very angry when you gently suggest to them that the way they have been getting rich will most likely not work in the future.  Unfortunately, when you work in the financial services industry, this can make it difficult to avoid awkward conversations.

Of course, a lot of people don’t bother sitting down in front of a real live person anymore in order to analyze their financial situation.  Instead, they choose to use an internet retirement calculator.  This has the advantage of allowing you to scream obscenities at it, safe in the knowledge that you can’t hurt the AI’s feelings.

Every financial company worth its salt has a retirement calculator on its website, including Vanguard, Fidelity, Charles Schwab, Edward Jones and many others.  They ask you to input a tangle of personal information like your age, current savings, salary, etc.  Then they spit a nice definitive answer back out at you.

Most of the time, the “bottom line” returned by a retirement calculator makes us feel anxious or inadequate.  Occasionally it makes us feel satisfied or superior.

But almost every retirement calculator asks for a single number that is more important than all the others.  It is a number that is hardly ever talked about, but is vitally important for investors.  This golden number is the return expectation, sometimes known as the discount rate.

Return expectations are crucial because a high rate of return will quickly grow even a small pile of money into a huge stash in very little time.  In contrast, a low rate of return means that a modest amount of savings will remain modest for an excessively long time.

We are all interested in achieving a high rate of return on our investments.  And the companies that design retirement calculators understand this.  They want us to feel good about our investment and retirement prospects.  Otherwise, we would all be too depressed to save anything – a situation which isn’t conducive to driving profits for large financial firms.

There is only one little problem for these financial firms and the retirement calculators they’ve created.  The default return expectations baked into most retirement calculators are, in a word, insane.  I’ve seen numbers that range from 5% on the low end to around 12% on the high end.

But these numbers are so unrealistic as to be laughable.  Even the 5% expected rate of return, while certainly better than double digit return assumptions, is unrealistically sanguine.  This is because the U.S. stock market (along with many other global equity markets) is trading at historically high valuations (warning: paywall).  A more realistic estimate for long-term stock returns would be in the 1% to 2% range, a possibility that effectively no one is planning for right now.

Relying on a balanced portfolio of stocks and bonds in order to pad the returns in your retirement calculator isn’t going to work either.  A variety of broad U.S. bond indices currently have yields between 3% and 4%.  These low bond returns will drag down the equity return portion of any balanced investment portfolio, assuming those future equity returns somehow manage to climb higher than 4%.

In other words, your investment plan, as validated by your favorite retirement calculator, is an impossible dream.  It is painting a fantasy of tropical white sand beaches and gently-lapping blue waves, when the ugly reality is likely to be trailer parks, dog food and squalor.

I get it.  You’re angry.  You don’t like me implying that the nice man who wears a crisp suit at your local brokerage office is lying to you.

And, to be honest, your investment advisor might not even be trying to intentionally mislead you.  He may simply be ignorant of reliable long-term valuation measures and what they portend for future asset returns.

Look, I’m not telling you this to make you upset.  I’m telling you because someone needs to tell you before it’s too late.  The financial media is full of cheerleaders, charlatans and hacks.  They will say whatever their boss tells them they should say in order to get next week’s paycheck.

They don’t have to live with the consequences of their bad financial advice.  You do.

So I implore you to get diversified – really diversified.  Don’t expect that adding another index fund to your 401-k is going to be enough.  It almost certainly won’t be.

Instead you’ll need to do some intellectual heavy lifting.  You’ll have to research investments that you never knew existed.  You’ll have to consider investments that might have seemed ludicrous just a few years ago.

Learn about investing in tangible assets, like fine art, precious metals, antiques and gemstones.  They aren’t a panacea by any stretch of the imagination, but they can’t be printed by the world’s deranged central bankers either.  And always be sure to take physical delivery of anything you buy.  In the future, if you can’t hold an asset in your hand, the chances are very good that you won’t own it in any meaningful sense of the word.

I don’t think you can automatically expect to garner double digit returns in any asset class.  But you will have a much better chance of meeting your financial goals if you have a healthy allocation to tangible assets.  Your retirement calculator may whisper sweet little lies into your ear, but don’t be fooled.  The investing future belongs to those who refuse to be deceived.

Read more thought-provoking Antique Sage investing articles here.

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Read in-depth Antique Sage investment guides here.