If you know anything about investing, I suspect that you may have come to some of the same conclusions that I have. Our capital markets are deeply broken. They no longer fulfill their basic mission of efficiently allocating money to productive businesses and ventures in the real world.
Savings accounts shouldn’t pay less than 1%. U.S. Treasury bonds shouldn’t yield between 1% and 3%. Large multi-national companies shouldn’t trade at prices that imply they will carve up the world among themselves in some kind of a neo-feudalistic, dystopian future. And yet, here we are, wandering, bewildered, through an economic wasteland.
The securities markets gyrate wildly, yet ever upward, as we vainly hope that the false wealth will last until we can personally cash out and flee to some remote tropical paradise. For most of us, including those currently toiling away on Wall Street, that day will never come. Instead, both our dismal economic history and dark monetary future will eventually converge, and probably when we least expect it.
I am aware of the counterarguments. The economy has been growing reliably, although anemically, since The Great Recession of 2008-2009. The U.S. Federal Reserve will keep interest rates ultra low for as long as necessary in order to stoke economic growth. The Federal Government is completely dependent for its tax revenue on our Frankenstein economy and will, therefore, never tolerate a serious market dislocation.
A few of these claims even have some validity. For example, I sincerely believe the Federal Reserve will keep interest rates depressed for the foreseeable future. But sometimes a disaster looms on the horizon and there is absolutely nothing anyone can do to avoid it.
I also believe the world’s business oligarchs and politicians will fight any financial chaos with the full might of their great wealth and formidable influence. And yet, in spite of this, I think that the powerful and moneyed classes will ultimately be incapable of slowing the great arc of history as it bends toward a grand economic rebalancing.
The winds of economic change are already beginning to blow, albeit faintly. The surprise election of Donald Trump to the U.S. presidency was one indicator that the financial status quo is beginning to fail. The Brexit – Great Britain’s unexpected exit from the Euro Zone – was another such event. There will surely be many other even more remarkable developments over the months and years to come. As financial conditions inevitably become less favorable your old investment plan may no longer be ideal.
If you are currently saving for retirement, it is imperative you pay attention to these trends. The investing world as you know it – the stable, benign, everyone’s a winner market of the last 35 odd years – is in the process of fundamentally changing. Although the securities markets seem placid so far, the tremors have already begun.
You need a reliable backup investment plan for this new reality. While I believe in and highly recommend investment grade art and antiques, there are other possibilities as well. It could be a burglary safe full of precious metal bullion. Or it could be a rental property that you paid cash for. Or it could be timber land that you intend to log in the future.
But whatever unconventional asset you choose, it must meet two criteria. First, it had better be a physical, tangible investment that you personally control. This will keep at least part of your net worth out of the paper asset casino that dominates most retirement accounts. And maintaining personal control will ensure that you aren’t at the mercy of an incompetent management team or an out-of-touch board of directors.
Second, it is vital to finance any alternative asset purchase using either very little or, preferably, no debt. While the debt financing window is wide open today, there will surely come a time in the not-so-distant future when refinancing your debt, even against good collateral, will be impossible. It is far wiser to be debt free and not risk blowing up your carefully constructed backup investment plan.
Financial change is coming. The clues are already out there in the real world for all to see. Get yourself a good alternative investment plan while there is still time left. There is a slim possibility you won’t need it, but it is better to be financially safe than sorry.
