Besides Real Estate, How are you Protecting Your Money?
Joshua D.Pro Member
BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votesBesides Real Estate, How are you Protecting Your Money?
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Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes
16yJosh- you don't want to hear it, but in drastic times, if you don't have food and water, the rest won't matter. On the other items, same as I've posted before in more detail. Not just real estate but:
1. a grouping of properties f&c
2. a grouping mortgaged to the hilt
(this hedges my bet both on inflation and possible continued deflation)
3. significant cash- minimum 6 months supply for anyone and more for those capable of reserving more cash
4. Gold in small ingots. 1/10 and 1/4 oz
5. silver- in junk silver coins- pre 1964
6. A real well drawn irrevocable trust.
I'm not doing any of this with eye to increasing estate. All of the items listed are for preservation of existing estate condition. Rich
65 Replies
- 16yMark UpdegraffBusiness MemberReal Estate Broker · Rochester, NY · Member since 2010 · 1k+ posts · 701 votes
Good post Josh!
I'm completely out of the stock market except for my IRA from my previous employer. Since I was laid off I intend to pull that and put it into RE.
So, I'm not much help here. But very interested in hearing what people are doing.
Updegraff Group Realty4.746 Reviews - Landlord · Seattle, WA · Member since 2010 · 3k+ posts · 1k+ votes16y
I've got money in gold and am considering investing in natural gas, one company is sitting on a large reserve in the mid west. I also have some money in equipment leasing.
Still working on positioning myself for retirement. Looking at estate planners and have found a good estate attorney.
- Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes16y
Josh- you don't want to hear it, but in drastic times, if you don't have food and water, the rest won't matter. On the other items, same as I've posted before in more detail. Not just real estate but:
1. a grouping of properties f&c
2. a grouping mortgaged to the hilt
(this hedges my bet both on inflation and possible continued deflation)
3. significant cash- minimum 6 months supply for anyone and more for those capable of reserving more cash
4. Gold in small ingots. 1/10 and 1/4 oz
5. silver- in junk silver coins- pre 1964
6. A real well drawn irrevocable trust.I'm not doing any of this with eye to increasing estate. All of the items listed are for preservation of existing estate condition. Rich
- 16yBrian LevredgePro MemberInvestor · Chattanooga, TN · Member since 2009 · 1k+ posts · 903 votes
I tend to think silver is a much better deal than gold. Aside from the obvious price differences, silver is trading near historic lows (because everyone is flocking to gold). In addition silver is used in the manufacturing process and there is actually less of it than gold. I got rid of all my stocks with the exception of one penny stock that I think is going to do really well in the next few years and whatever isn't in cash is invested in some oil and gas funds.
- BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votes16y
Good feedback so far guys. For the folks invested in silver, what do you the best way to go is? Coins?
I think that silver is probably a great investment now for the obvious reasons and those that Brian mentioned above, but I'm not certain how/where to pick up some physical product. Sure I could buy an ETF, but I think having some on hand is always handy . . .
Thoughts?
- Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes16y
I sorta agree with Bryan. I also like silver better than gold, but it is NO WHERE near its' low. I bought for under 5 bucks an oz. I don't have the great graphs that some have, but I'd bet gold/silver graphs would look a lot alike.
Josh- I like junk silver bags, That is $1000 face value of 1964 and older dimes, quarters and halves. A "bag" comes in 2 bank bags, and weighs approx 55 pounds .
Unlike bars, these are actually real money and could be used as such. If there isn't a premium, I like the halves. If you have young kids, it is fun to go through the bags and start a coin collection with your kids. Great fun and education. Gives you quality time to bond and chat with them. Rich - OR · Member since 2008 · 1k+ posts · 845 votes16y
Agricultural land in Uruguay. Oops, that's still real estate, isn't it.
- 16yBrian LevredgePro MemberInvestor · Chattanooga, TN · Member since 2009 · 1k+ posts · 903 votes
Rich is right. I should probably amend my statement somewhat. Having said that, the price of silver was higher during the last bout of inflation (late 70s-early 80s) than it is currently selling for. If you adjust for inflation that means that silver could pretty easily hit $200 per ounce when inflation rolls around again. Silver is up about 20% or so from six months ago. In other words, you can get much higher returns from it than you would likely get from gold. Here's a graph showing historical spot prices for silver:
http://goldmastersusa.com/silver_historical_prices.asp
The following site is where I have bought mine from as well as others I know. You don't want to buy anything that you can't have in your possession (think FDR when the govt confiscated gold). It's safe and secure.
http://goldsilver.com/home/
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes16y
Gold and silver are both bad stores of value if the crap really hits the fan because the government generally confiscates it. If you think I am kidding you may want to read some history books about what has happened IN THIS COUNTRY during times of distress. I am reading a book on hyperinflation and depression right now that is rather enlightening on this subject. Gold is also ridiculously overpriced right now with all of the Chicken Littles running around. Titanium or other metals would be a better hedge IMO.
Personally I think all of the concern is overblown and that we will just have several years of a "muddle through" economy as John Mauldin likes to call it. Equities are poor investments in a secular bear market like what we have right now, but it is still good to hold some to diversify.
Assetbuilder has Fama/French three-factor portfolios that are based on SCIENCE principles. I store about 1/3 of my equity in Portfolio 14 there, half in real estate ventures, and around 10% in cash with the allocation varying from time to time. Going forward I am going to invest in contrarian plays in real estate syndicates because I think that is where people will make fortunes coming out of the depression. CASH IS KING right now and those that can summon large pools of money to buy assets on the cheap will make mounds of money going forward.
Bankruptcy planning and/or buying everything you need for the rest of your life are the only effective plays against wild currency swings. Having good intellectual capital that is useful as barter is a good investment too.
- Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes16y
Josh asked for ideas if the "market or economy crashes".
Bryan- due to what Josh asked, I disagree with a lot of what you proposed. Assuming a crash:
1. no one will understand your titanium or other metals. They will understand US coins and US gold coins, imo
2.I disagree that gold is overpriced. Supply and demand always determines value.
3. It doesn't matter whether you "think muddle through". THat wasn't the assumption.
4. 10% cash is not high enough, imo.
5. Completely disagree with your 2 effective plays. I feel I'm perfectly situated in my program as it is and time will tell.I respectfully submit these differences as a "contrarian" view to yours. I do agree 100% that cash is king.This will give readers two completely different approaches. Remember, this was to prepare for a crash in economy. Rich
- Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes16y
Mostly real estate (I.e., my business) and cash. Getting ready to refi my personal residence and will probably put a good bit of cash in (better than 2% in a money market). Still have a couple small angel investments in tech plays.
Had gold (1 oz coins) but sold when it surged last year. Looking to get back into some metals but don't know much other than gold.
Thanks for the silver links...will do some research...
- Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes16y
Originally posted by P NW:
Agricultural land in Uruguay. Oops, that's still real estate, isn't it.
Really? Tell us more.
I own an IT services business, a few stocks, and some RE notes. Not so great for an economic earthquake.I read Mauldin too, and tend to agree with a muddle through economy for the next few years unless a really big black swan comes along.
- Homeowner · Philadelphia, PA · Member since 2010 · 123 posts · 66 votes16y
I'm not doing as well as I'd like. I keep a decent amount of cash and if I had any sense I'd hide it in the house. I'm concerned about cyber-terrorism. Other than that it's mostly stocks and mutual funds. I feel stupid just writing that.
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes16y
Well I guess that is what makes for a market Rich. Different views are healthy and depend a lot on one's personal circumstances.
Originally posted by Rich Weese:
Josh asked for ideas if the "market or economy crashes".
Well I interpreted the topic more broadly based on the title of the thread. How you protect your money deals fundamentally with what you think you need to protect against. I think one of the major things that people need to protect themselves from is irrational fear that causes them to do non-optimal things with their money and not take risk.I know that you fundamentally think the country is mismanaged and it headed for catastrophe. I don't subscribe to this philosophy and hence I don't do kooky things with my money like I would if I was convinced we are heading for Armageddon. Policy is certainly bad, but I don't think we are headed for Weimer Republic by any stretch.
Originally posted by Rich Weese:
1. no one will understand your titanium or other metals. They will understand US coins and US gold coins, imo
It doesn't matter. The point isn't to speculate on commodity prices. The point is to maintain purchasing power if there is a crash. I am sure aircraft manufacturers will buy titanium to build planes if the currency values swing either way as will other consumers of titanium or any other commodity.Originally posted by Rich Weese:
2.I disagree that gold is overpriced. Supply and demand always determines value.
Yeah...the the demand is driven by a bunch of people that listen to idiots like Glen Beck and don't know any different. Gold's market value is TRIPLE its intrinsic value (from independent and rational sources) right now...which is the definition of overpriced.Originally posted by Rich Weese:
3. It doesn't matter whether you "think muddle through". THat wasn't the assumption.
See above...yes it DOES matter. The biggest risk in life is often not taking any. This is compounded if you are young and your time horizon is lengthy.Originally posted by Rich Weese:
4. 10% cash is not high enough, imo.
I agree that it is aggressive and I am working to beef it up some going forward. I have credit lines to draw on if they are needed so I can afford to keep small cash reserves. I am targeting 10% of my long-term debt in cash for now.Originally posted by Rich Weese:
5. Completely disagree with your 2 effective plays. I feel I'm perfectly situated in my program as it is and time will tell.
Your strategy seems to be fine for those with the luxury to have it. Younger folks don't have the equity to have tens of properties free and clear with estate plan protection.Bankruptcy planning and buying things prior to currency swings are sure-fire ways to protect wealth. All of the other forms of hedging are subject to risks, although they are certainly better than doing nothing.
Originally posted by Rich Weese:
I respectfully submit these differences as a "contrarian" view to yours. I do agree 100% that cash is king.This will give readers two completely different approaches. Remember, this was to prepare for a crash in economy. Rich
I respectfully submit that the Chicken Little mentality is precisely WHY the country is in bad shape right now. The greatest fear is FEAR ITSELF. We are still the richest and best nation on the planet. Those that are cowering in fear right now because news magazines and talk shows need to sell more commercials are the ones that will miss out on the best opportunity in a lifetime to strike it rich.BUY WHEN THERE IS BLOOD IN THE STREETS....NOW!
- Realtor · Gallatin, TN · Member since 2009 · 292 posts · 164 votes16y
Currently ....
Daily Small Business = ECommerce.
Passive Small Business = Real Estate
6 Figures in MM Accounts, and now from reading this thread, looking in to metals/coins. Also Cash in area's that I need it ....
Also scheduled for my carry permit (from reading a previous thread a week or so ago) and plan to stock up on "personal protection equipment"
Land/Cash/Coins/Guns .... what else do i need? O, that's right ... My Faith in God!Land/Cash/Coins/Guns/Bible -- I'm Set & Ready!
- BiggerPockets Founder · HI · Member since 2008 · 16k+ posts · 5k+ votes16y
Guys - lets stick to investments and keep the guns/ammo/stockpiling discussions to the politics forums like I asked in my initial post. Thanks!
- Real Estate Investor · Phoenix, AZ · Member since 2009 · 1k+ posts · 1k+ votes16y
Guys, have any of you considered foreign stocks? There are country-specific ETFs that make this a lot easier than before. It is important to remember that many parts of the world are experiencing an economic boom and great future prospects.
I agree with Bryan that gold is overpriced right now. One problem with commodities is that they are a bit of a gamble because the price is based purely on demand and supply and demand often changes suddenly as investor sentiment changes.
The stock of a good company with good financials and good growth prospects is much easier to value because it is based on the cash flows that the company will generate. In other words, it actually has an intrinsic value whereas the only intrinsic value of a commodity is the cost of extraction.
I think emerging market ETFs are the logical diversification plan for people in developed countries with bleak prospects. If your country is not doing well, why not profit from the success of other countries? I never limit my opportunities to one country or one part of the world.
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes16y
My portfolio (Portfolio 14) from Assetbuilder has international exposure so I don't have to worry about chasing the latest fad country.
Dimensional Funds are the way to go if you believe in mostly efficient markets for securities, which I do. Here is the allocation if anyone is interested:
Fixed Income
-5% / DFGFX - DFA 2 Yr Global Fixed Incm Port
-3% / DFIHX - DFA Dimensional 1YR Fxd IncU.S. Large
-9% / DFLVX - DFA US L/C Value Portfolio
-7% / DFUSX - DFA US Large Co Insti Inx PortU.S. Small
-8% / DFFVX - DFA Targeted Value
REIT
-13% / DFREX - DFA Real EstateCommodity
-11% / DBC - PowerShares DB Commodity IdxInternational
-11% / DFIVX - DFA Intl Large Cap Value
-11% / DISVX - DFA Intl Small Cap Value PTEmerging Markets
-11% / DEMSX - DFA Emerging Markets Small Cap
-11% / DFEVX - DFA Emerging Markets ValueFor those with the skill to find undervalued real estate I think being highly overweight in that sector is a good play. However, I think one also needs to be cautious that they don't drink too much of their own Kool-Aid and hedge a little by being diversified. That is why I haven't ever self-directed my retirement funds to date.
- Real Estate Investor · Phoenix, AZ · Member since 2009 · 1k+ posts · 1k+ votes16y
Originally posted by Bryan Hancock:
My portfolio (Portfolio 14) from Assetbuilder has international exposure so I don't have to worry about chasing the latest fad country. Dimensional Funds are the way to go if you believe in mostly efficient markets for securities, which I do.
Bryan, it is a serious investing mistake to assume efficient markets in emerging economies. Markets are not perfectly efficient anywhere and, in particular, are grossly inefficient in emerging markets.Your idea about fad countries is spot on, except that it is a GREAT way to make above average returns. All you have to do is move funds from the currently popular countries to the currently unpopular ones using ETFs. I know that this works really well in Asia and I am sure it works well in other emerging areas as well.
In the same way that highly volatile real estate prices gives the rational investor an advantage, the lemming-like behavior on Wall Street gives the logical investor a great way to exploit fads.
P.S. I used to be a strong proponent of the efficient market hypothesis when I was in grad school and soon afterwards. And then the real world of investing made me change my mind. I think 99% of stocks are correctly valued 99% of the time but you only need to get that 1% in order to very substantially beat the market. This is really not dissimilar from buying houses at much less than ARV. Guys like Warren Buffett did not make money believing in the EMH.
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes16y
I agree with you there Vikram ;-)
I am not a blind believer in efficient markets either, but I mainly know how to exploit non-efficient markets in the real estate arena. A lot of factors make real estate prone to distress, which is a great condition for non-efficiency and good purchases at discounts to intrinsic value.
There is always a tradeoff between "keeping powder dry" to exploit inefficiences in the market and "keeping your money working." My approach has been to learn how to raise money so that I can deploy it to profitable projects and take a promote interest in the project while erring on the side of keeping my money at work. I think the biggest risk for one's portfolio is not taking any and that opportunity cost accounts for more "losses" than people realize.
Can you describe how one would go about identifying out-of-favor, ETF-based plays for certain countries to make money? I am and I am sure others are open to learning about this approach. It never hurts to learn how other more successful investors are making money!
- Real Estate Investor · Phoenix, AZ · Member since 2009 · 1k+ posts · 1k+ votes16y
Regarding keeping the powder dry vs keeping the money working, I learnt (the hard way) that it is better to keep your powder dry when investing in highly volatile markets like most emerging markets. It really pays to be a very greedy investor who will only take the plunge when valuations are ridiculously good.
Regarding evaluating markets, that could be the subject of a book. But here's a way to start thinking about it in the right way:
1. Make a list of emerging markets that you consider somewhat politically stable. They need not be as stable as the U.S. or Europe - you just want to avoid the future Zimbabwes and Ugandas.
2. Then consider the market size, liquidity, etc. (This is more important to stock pickers than to ETF investors.)
3. Then look at the long-term ROEs of these markets. Some countries are perennial losers (low ROEs) and some are perennial winners. I do not like low-ROE countries so you can weed those out.
4. You can do a DCF analysis to figure out the relationship between ROE and P/E ratios. I used to have a matrix somewhere. But anyway, in investing, it is best to keep things simple instead of making it rocket science, so you can have simple rules of thumbs such as: A country with long-term ROE of 15% should be trading at about a P/E ratio of 15. Once you figure out your analysis, you will have a ballpark fair value for each emerging market based on its macro characteristics.
5. The next part is easy. Let us say that you have a table such with FMV P/Es such as this:
India - 20
Singapore - 15
Thailand - 12
Korea - 14Now, all you need to do is move your money once a year or once a quarter or right after some major moves from the most overvalued to the most undervalued. If India is trading at 10 and Korea at 20, I know I should sell Korea and buy India. This strategy results in pretty good profits in Asia because the markets are a bit nuts here. (IMP: the P/E ratios above are randomly selected for this example. They are not my opinion of the fair value for those countries.)
6. Now, one other thing to keep in mind is the psychology of these markets. Each country seems to have a market perception of fair value that may be a little different from your DCF calculations. I try not to change the world to suit my models but I also do not blindly follow market sentiments without regard to my calculations. This is a judgment call that you will have to make to adjust your ideas of undervalued and overvalued.
I hope this was clear. I actually prefer stock picking to indexes because you can make a lot more money that way if you are good at it. But with the Asian markets, ETFs are an effective way to regularly jump on the out-of-fashion country and ride it until it is back to normal, and then jump on the next out of fashion country, etc.
It is important for all of us to realize that this century looks like it might be the greatest period of economic growth in the history of the world. We should not look at our own little corners of the world and misjudge the opportunities out there. The great thing is that online trading, ETFs, etc. have made it so easy for someone sitting in Tennessee to invest in Thailand.
Good luck to all of you in your investing.
- Investor · Round Rock, TX · Member since 2010 · 8k+ posts · 4k+ votes16y
Great post Vikram!
How do you go about doing DCF analysis on ETFs? Do they normally trade a few select securities in those countries or are they generally bigger baskets? Do you account for currency changes in your analysis?
Is there some decent literature to learn about the details of how to model these trading strategies that you have run across?
- Real Estate Investor · the villages, FL · Member since 2008 · 5k+ posts · 3k+ votes16y
Bryan- I was going to let your reply in this thread responding to my 5 items sit without responding,,, but I can't. You missed the assumption of economy crashing. That is the reason I responded as I did.
You have enuff book cliches in your last paragraph to last the entire thread. I have no problem with your thoughts and feelings. I think you might be taken a little more seriously after you've been around the block a few times. Book learning is wonderful, but experience also seems to hone someones' choices and decisions.
My "cliche" is hope for the best BUT plan for the worst. That is what Josh was asking for in original thread.
I normally state that time will tell, and imo. I'm willing to let this thread stand the test of time and see who was better prepared. If you were referring to me as chicken little, I resent it. I try very hard not to call posters names and will continue to try and keep it civilJosh- I didn't bring up guns and ammo AND I'm not the one that brought up Armageddon, tic. Rich
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