Why Keeping Cash in the Bank Is a Mistake: 7 Superior Assets
One of the most misleading beliefs about banks is that our money grows in our bank accounts.
However, the reality is that although the number of funds may increase due to interest, its actual value doesn't keep up with inflation.
In fact, with inflation rates rising significantly and bank interest rates falling behind, keeping cash in the bank can lead to the erosion of your wealth.
In this article, I’m going to reveal seven assets that can prevent this loss of wealth and aid you in building intergenerational prosperity.
Ready?
Number #1
Number one: precious metals.
This is one of those primary assets recommended by financial experts, which includes things like gold, silver, and platinum.
Money's value is diminishing due to governments printing more currency to finance deficits, making it susceptible to becoming worthless over time.
To counter this, investing in scarce and valuable assets like gold and other precious metals is advised.
The wealthy often allocate a portion of their portfolio to precious metals, as they tend to appreciate in value when inflation is high.
For instance, in the 1970s, an ounce of gold cost around $40, but in 2023, it exceeded $2,000, with predictions indicating it may reach $10,000 by 2032, showcasing a significant increase in value.
Unlike cash, who loses value, precious metals continue to appreciate.
To gain exposure to gold without buying physical gold, investors can consider gold ETFs, which are affordable investment options offering returns based on gold price movements without the need to hold physical gold.
Do note that this is considered paper gold, which comes with its own set of setbacks, such as not owning tangible gold, having to pay an extra fee on top of it every year, otherwise known as an expense ratio.
And lastly, the ETF or mutual fund you bought might or might not even own actual gold!
Therefore, it is best to do your research before actually investing your money.
Number #2
The second item on the list is Industrial Commodities, in layman’s terms:
the essential raw materials needed by large manufacturing companies in running their businesses.
While precious metals hold value due to their scarcity, they also possess intrinsic utility, making them indispensable industrial commodities.
For instance, silver finds extensive use in electronics, medical equipment, nuclear reactors, and various other applications.
Similarly, metals like Cobalt, nickel, and copper have significant industrial demand due to their unique properties that are hard to replicate using alternative materials.
A prime example is Cobalt, whose demand surged since 2020, primarily because of its crucial role in manufacturing batteries for electric vehicles.
Consequently, its prices escalated from $20,000 per ton in 2012 to $40,000 in 2022, marking a remarkable 100% increase in just a decade.
Therefore, including exposure to such raw materials in your portfolio during high-demand phases can substantially enhance your investment prospects.
However, not everyone can afford to invest substantial sums in acquiring raw materials, and physical storage or finding appropriate buyers may present challenges.
To overcome these hurdles, one can invest in stocks of mining companies like Rio Tinto, opt for mining-focused mutual funds, or consider derivatives such as futures and options.
These alternatives offer excellent avenues for gaining exposure to industrial commodities without the constraints of physical ownership.
Number #3
Number 3, Safe Haven Currencies.
In today's world of Fiat currencies, where none are backed by gold, geopolitical stability plays a critical role when deciding where to invest money.
This is why affluent individuals often choose Swiss banks to safeguard their wealth.
Switzerland boasts one of the world's strongest economic systems and offers a more stable geopolitical environment, making the Swiss franc a sought-after safe haven asset during times of turmoil and instability.
This phenomenon has been evident in various instances, such as the Eurozone Debt Crisis in 2009 and the Global Financial Crisis in 2008, where substantial funds flowed from other countries into Switzerland to shield against wealth erosion caused by currency depreciation.
Additionally, the Swiss franc serves as a valuable alternative to the US dollar in international trade.
During events like the Russia-Ukraine crisis, when the US imposed sanctions on Russian energy trade, Russia executed trades in Swiss francs, leading to a significant surge in demand for the currency and subsequent appreciation against other currencies.
For instance, in early 2023, one Swiss franc was valued at 1.1074 US dollars, resulting in Swiss franc holders experiencing substantial wealth growth overnight.
Apart from the Swiss franc, other superior currencies like the British pound and Chinese Yuan also serve as excellent stores of value.
However, not everyone can access Swiss bank accounts.
Fortunately, currency ETFs and Forex Brokers like forex.com offer opportunities for smaller investors to gain exposure to currencies with as little as $100.
These alternatives allow investors to hedge against currency risks and seek stable assets during uncertain times.
Number #4
Number 4: Sovereign Guarantee.
Have you ever taken a close look at the dollar bill and noticed the words "this note is legal tender for all debts public and private"?
Wonder what it means?
Well, in 1971, when President Nixon abolished the gold standard, the US dollar became legal tender by US law.
This designation made it valuable as a medium of exchange, and we started considering it as an acceptable payment for goods and services.
Although no fiat currency in the world is backed by gold or any physical asset, they are still perceived to be supported by the full faith and credit of the government.
In simple terms, the stability of your money depends on the stability of the government that issues it. This is why investing in sovereign guarantees is considered a valuable store of value.
The government of any nation is typically the last to default because if the government defaults, the entire nation would face default.
Strong governments would avoid such a scenario at all costs. Therefore, investing in sovereign guarantee offers a safe option.
One of the common ways to invest in sovereign guarantee is through government securities or G-secs. However, it’s essential to invest in stable government G-secs with investment-grade credit ratings.
The 2009 sovereign debt crisis in Greece serves as an example where multiple bailouts were required from entities like the IMF, Eurogroup, and ECB due to the country's debt troubles.
When investing in G-secs, it is crucial to assess the global strength of the government in question.
In the US, investors can choose to invest in treasury bills, notes, and bonds to gain exposure to sovereign guarantee.
These securities offer better returns than keeping money in the bank, and they are backed by the strength of the US government in the global economy.
Small investors can directly buy treasury securities from the government through the Treasury Direct portal or from the secondary market.
Number #5
Number 5 on our list is value stocks and mutual funds.
While treasury investments offer better returns than holding cash, they still provide lower returns compared to stocks.
Although low risk is essential for risk-averse investors, higher returns are often desired by all investors.
Stocks offer a great opportunity to achieve those higher returns. However, not all stocks carry the same level of risk.
The stock market can be broadly categorized into two types of stocks: value stocks and growth stocks.
Growth stocks, particularly in the technology sector, are considered riskier due to their reliance on innovative ideas and technologies, which might have a higher potential for failure.
On the other hand, value stocks, like companies dealing in industrial metals, such as Glencore, pose less risk because of their established demand for the foreseeable future.
Value stocks with robust fundamentals not only provide steady and stable price appreciation but also offer stable dividends.
Conducting thorough research on the fundamentals of each value stock can be time-consuming and burdensome for average investors.
Hence, dividend-focused mutual funds like the Vanguard High Dividend Yield Index Fund Admiral Shares, which have a reliable history of paying dividends, are ideal and affordable investment options for retail investors.
By investing in such funds, individuals can gain exposure to a diversified portfolio of value stocks, benefiting from their stable price appreciation and steady dividends without the need for extensive research.
Number #6
Number 6 is land, as they say: “invest in land”, it’s the only thing they aren’t making any more of!
Regarded as a non-depreciating asset because of its scarcity and consistent demand throughout history.
It serves various essential purposes such as housing, education, industry, agriculture, and commerce, making it one of the most valuable resources globally.
As the human population grows, the demand for land will continue to rise, making it an excellent inflation hedge in an investment portfolio.
Real estate properties, including residential homes, office spaces, and commercial properties, built on land, also experience continuous demand.
Housing prices have demonstrated significant appreciation over the years, even with a dip during the 2008 housing bubble, making real estate exposure a valuable strategy against the devaluation of the dollar.
Often, small investors consider real estate as a later-life investment, mainly associating it with owning a primary residence.
However, it is advisable to have exposure to the retail property market at any age.
Contrary to common belief, gaining real estate exposure does not necessarily require substantial capital.
Investors can opt for REITs (Real Estate Investment Trusts), which function similarly to mutual funds but focus on real estate assets.
Another option is to invest in rental properties through borrowing, with rental income covering expenses, mortgage payments, and generating additional profits.
Number #7
Finally, number 7: collectibles.
These encompass a diverse range of assets, including vintage cars, rare art pieces, luxury handbags, limited edition watches, and iconic first-edition books.
While regular cars typically depreciate in value once driven, the opposite is true for vintage cars, which become more valuable over time.
For instance, a 1955 Mercedes-Benz 300 SLR Uhlenhaut Coupe was sold in 2022 for an astounding 135 million euros, as one of only two of these cars were ever produced, making them highly sought-after collectibles in the eyes of car enthusiasts.
Similarly, rare art pieces hold immense value and can command staggering prices at auctions.
For instance, Leonardo da Vinci's controversial painting "Salvatore Mundi" was sold for a massive $450 million at a Christie's Auction in 2017.
Wealthy individuals are willing to invest significant sums in limited edition collectibles because these unique items serve as timeless repositories of value, and they can potentially fetch exorbitant prices when sold to the right buyer.
While investing in collectibles may seem like a distant dream for average investors, online marketplaces like "Whatnot" offer fantastic options for selling rare items such as baseball cards, comic books, action figures, and more.
Additionally, platforms like "Masterworks" allow investors to own partial shares of valuable collectibles, this makes it even more accessible for people who are just starting out and may not have much money to invest yet!
That's the end of this article.
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- Ivan