Saving in Gold
I began saving mostly in gold in the year 2000. Gold was very unpopular then, so it looked cheap, and it has worked for a thousand years. Gold is not a promise to pay like a check; it is a payment by itself. Nobody can counterfeit it as easily as a government can print worthless dollars.
Over 26 years, gold kept its purchasing power while currencies lost theirs. Price housing in gold and houses are cheap. Price groceries in gold and groceries are cheap. Price your wage in gold and you are cheap - that is the lesson of saving in gold.
At a minimum, save 10% of 10% of what you save in physical gold, because it holds purchasing power. A higher share is better. But most people in the world cannot even spell gold, so asking for 10% of 10% is already a big ask.
Liquidity as Ammunition
Keep more liquidity than you otherwise would. Saving US dollars in a 20-year Treasury at a little over 5% does not make you 5%. The purchasing power of those dollars falls about 8% compounded, so you are losing about 3%. Do it anyway, because that liquidity lets you take advantage of periodic liquidity shortages like 2008. Having cash lets you profit from other people's illiquidity instead of being the one taken advantage of.
Almost $3 trillion sits in US bank accounts, mostly checking accounts, that pay no interest. Taking deposit risk and currency erosion for no reward is stupid. Move that money to a bank that pays interest on checking. Battle Bank was founded on exactly this idea. That $3 trillion earning nothing shows how financially unsophisticated most savers are.
A liquidity squeeze is a "when," not an "if," and it is a sale. Warren Buffett said anyone who cannot handle a 50% drop in their stock portfolio has no business owning stock. Over the 60 years Buffett ran Berkshire Hathaway, the share price fell 50% or more ten times across 18-month periods. Yet the long-term chart is an unbroken rise from lower left to upper right - you cannot even see the 50% drops. During those drops you need courage and the tools to buy. Most people sell during declines instead of buying, which is a crime against their own interest. You have to have something to buy with, and you have to act. Cash reserves are ammunition against forced selling, not dead money.
Shelter and Fixed-Rate Debt
Housing is overpriced relative to other assets, such as its historic relationship to stocks. But housing tends to hold its purchasing power. You can almost always buy existing structures below replacement cost, and replacement cost always rises. With a 30-year mortgage your cost of capital stays fixed while the return on capital you can charge rises. That gap between what you make and what it costs you is what makes you wealthy.
After reading a book by Nickerson on residential real estate at age 16, a rundown triplex in East Vancouver got bought very young - two upstairs two-bedroom units and one basement suite. Living in the basement, the two upstairs units paid the mortgage. A friend at the University of British Columbia bought a rundown seven-bedroom house, lived in one bedroom, and rented out the other six.
This is still possible today. Someone who has saved for 10 years can buy a property, live modestly, and cover some or all of the mortgage by renting out parts of it. You can still lock a 30-year fixed loan that freezes your cost of capital while inflation lets you raise rents over time. It is nowhere near as easy as before, but it is possible. The real advantage is the spread between fixed debt and an inflation-adjusted asset, and it works only if leverage and location stay disciplined. If you never want to own or freeze your occupancy cost, that is fine - but the price you pay for a want today may hurt your ability to finance your needs later.
Invest in Yourself First
People need to work harder at investing and put more into their own education before their portfolio. The market is not a subject; it is a facility to buy and sell fractional ownership of businesses, or fractional pieces of loans to those businesses called bonds. If you do not understand the business and the proposition, you have no business investing.
Attack fear of missing out. Watching Nvidia (NVDA) rise a hundredfold and then buying it because it rose a hundredfold - without being able to spell Nvidia, pronounce it, or say what it does - is a mistake. Investing is about compounding: finding a proposition more likely than not to make money over time and holding it over time.
Many speculators have sound long-term thesis - gold will do well over 5 years, or copper and oil are under-invested and should do well over a decade - but they cannot hold a stock over a long weekend. The gap between the strategy and the tactic dooms them to failure.
Circle of Competence
Be in the tech sector if you understand it. What is scary is many people doing many things they do not understand at all. Some young tech investors have a durable competitive advantage and will beat me badly if I enter their circle of competence, just as I would beat them in mine. Invest in yourself before you invest generally.
There are many ways up the mountain. Through the inflationary 1970s, Buffett called gold a "pet rock" and instead bought businesses with economic moats and pricing power. He did fine, generating 24-25% compound returns from 1968 to 1982, 14 hard years in equities. Buffett was smart and disciplined enough not to need gold. Gold was the simpler way for those without his analytical edge. Your portfolio should match your circle of competence, not someone else's.
The Next Decade
Most people never ask themselves what their fears are or how to be the architect of their own financial future. They never make a plan, and if they do, they never stick to it - a recipe for failure. Over 65% of people in both the US and Canada live paycheck to paycheck, if they have a paycheck.
The next 10 years will not be catastrophic overall, but they will be catastrophic for people who assume the next 10 years look like the last 10. For those who never build enough skill to give society more benefit than they consume, the next decade will be extremely unpleasant.
The real purchasing power of both the US and Canadian dollar will fall by 75% over the next 10 years. That means it will take about $4,000 in 2036 to buy what $1,000 buys today. Will your savings and pension still support your standard of living?
People who think they can offload responsibility onto society failed math. In the US, the net present value of unfunded entitlement obligations - Medicare, Medicaid, Social Security, federal pensions, military pensions - exceeds $100 trillion. That is 20 times a full year of net federal revenue. Society's ability to keep that support 10 years from now is nil. The danger is not one dramatic crash but years of quiet currency dilution.
From Fear to Action
Real fear is counterproductive; you must be concerned, not paralyzed. People so afraid they curl into a fetal position and whimper cannot get ahead. If fear pushes you into action, that is different. Think about what you could do that benefits others, do it, and save the balance.
Then learn how to invest while keeping liquidity. Learn what a share is worth. Learn how bond yields compare with the chance of default, and whether the yield does or does not make up for the erosion in the purchasing power of your savings. Uncertainty is permanent, but helplessness is optional.
