#Adulting: The money myths you shouldn't subscribe to, and clever ways to invest your money
A quick crash course
So you've probably already know that you should explore investing, because that's how Proper Adults protect and grow their wealth, as well as plan for their retirements. But taking the first step can be scary, especially if you don't know where to even begin. We got David J Mitchell, founder and partner at bullion company Indigo Precious Metals to debunk some myths about investing and give us the lowdown on the different types of investments.
Meet our expert:
David Mitchell has over 30 years of experience in the finance industry, having been a trader and analyst since the mid ‘80s. He established his own trading fund in 2006, and founded Indigo Precious Metals in 2014.
Myth #1: "I'll be fine as long as I have enough savings"
Yes, saving is essential. But according to David, the question you should really be asking yourself is this: what are you saving in?
"If you save in a currency that the government fully intends to debase [read: Modern Monetary Theory] and only pays sub-standard interest rates, then saving in ‘real money', i.e. gold, is the natural choice as it will retain its value."
And if your ultimate goal is financial freedom, aka be rich, then saving alone definitely won't be sufficient. As David puts it: "How many successful millionaires do you know created wealth by investing into savings accounts in a depreciating currency?"
Myth #2: You cannot lose with real estate
This is false. "History categorically proves that property prices move in cycles. One prime example is Japan's property market, which fell dramatically for 16 years from 1989 to 2005," David explains.
"The great rewards of owning property over the last 20 years was built on a foundation of enormous debt growth. This foundation is now crumbling at this particular point in the longer term cycles, which means that property investment moving forwards will lead to heavy losses. Every asset class has its day in the sun, and vice versa, mired in winter. Understanding these macroeconomic cycles is the only way to ensure wealth growth and shrewd investments."
MYTH #3: Gold or precious metals do not earn yields
Yes they do, but only if you are doing things with them — just like cash. If you leave your cash on the table, then you obviously won't be getting any returns from it. However, if you invest it or put it in a bank account, that's where you'll be seeing some yields.
"Gold also has its own interest rate. It's a Tier 1 global monetary capital asset, and if you lend your gold out in a similar manner (to cash), you can likewise earn a yield in the exact same way, or utilise this capital to invest wisely," says David
MYTH #4: Bonds cannot deliver growth
On the contrary, bonds can deliver fantastic growth. David explains why: "Their physical price works inversely to interest rates. So if interest rates fall, then the demand to own a higher-yielding bond becomes attractive and its price rises."
However, David warns that we're now at the end of the longest-recorded asset bubble in bonds, and interest rates have now fallen to zero and below. "With the record issuance of new debt securities globally and the fact that interest rates can only now go higher, this means that we are facing a devastating, cyclical bear market in bonds in the years ahead."
The Wolf of Wall Street
David breaks it down for us.
STOCKS: "There's so much information and analysis out there on when to hold or sell. My recommendation is to stay away from pundits who have an axe to grind as they tend to be biased when selling a particular stock to the market. I generally avoid bank recommendations as a rule."
PROPERTY: "Property yields have to be studied against the cost of capital (bank loans and future interest rate structure) and long-term debt dynamics. I really do not like the look of property investments for the next 10 years. But of course great opportunities can arise, and yield recognition (i.e. prevailing rental rates) will provide a clearer picture of whether the property is overvalued or not.
CRYPTOCURRENCY: "It's not a wealth preservation asset. Cryptocurrency is a trading vehicle: you need to chart out your investment, complete with stop-loss parameters."
PRECIOUS METALS: "Precious metals are predominantly a wealth preservation asset in times of crisis and also have real-world industrial demand dynamics. Understanding and studying both of these components should influence your level of participation and investment timing."
ART: "Art demands a great deal of skill and knowledge, and usually deep pockets too. Also, art doesn't provide immediate liquidity to the investor, so this is generally only for long-term investing."
Common investments concerns for first-timers
Of course, as a first-timer, it's understandable to have a lot more questions before making your first investment. We got David to address some common concerns and questions.
Investing intimidates most people, especially those who feel financially inept. How can someone like that start investing?
Raising one's awareness of the global macroeconomic picture should be an essential part of every adult's education. Sadly, financial institutions and wealth managers often intimidate people with financial jargon and purposefully obscure financial reports and statements that are unintelligible to the average layperson.
Understanding investment cycles is actually quite intuitive and instinctive. They are like waves on an ocean and buying at the top of the wave will always lead to losses and a resulting disenchantment with investing. My recommendation is to always study long term investment cycles, something that we put a big emphasis on and always help our clients to understand fully.
What is your timeframe, and are you looking for immediate investment profits?
Probably one of the most successful analyses of market pattern recognition is the study of the Pi cycle, which demonstrates that investment cycles have lengths of 8.6 years. Spotting where we are within this cycle provides you the time frame to use as your foundation to investing.
Another rule of thumb when it comes to investing is that 80 percent of "the move" occurs in the last 20 percent of the time length of the cycle for the asset class in question. I would also never recommend leverage when investing across asset classes unless you clearly understand your exit levels and have a great deal of market trading experience.
We hear that business is booming for precious metals. Why is that?
COVID-19 has instigated the largest global industrial stoppage in over 100 years, with the closest comparison being the Spanish Flu of 1918 where it was recorded that we had a 10 percent fall in GDP. In 2020, we are already seeing a much larger fall in GDP.
The global debt crisis and COVID-19 policy reactions are being met with a massive increase in fiscal and monetary expansion; basically a global currency debasement. Property, bonds and corporate debt, currencies, banking stocks and stock prices are all looking very perilous and the investment drive has been into non-correlated, safe haven assets, i.e. precious metals. The largest institutions, wealth managers and hedge fund portfolio managers are all suddenly grasping the huge importance of gold.
I'm interested in investing in gold and other precious metals. What are the things I should know about before I start investing?
Which metal to invest in and why? Is it gold or silver, platinum or rhodium, or a specific portfolio combining a selection of each of them? What are the best products to purchase in each metal that will offer you the best return and liquidity? What are the tax implications, vaulting storage costs and most importantly, where am I going to garner the best liquidity when exiting metals and converting my metal holdings back into currencies?
Was there something you wished you knew or did before in terms of personal finance?
Knowledge is important and time should not be wasted. When I look back at the many opportunities I was offered but didn't take advantage of, it's mainly because of a lack of awareness and because I thought I was young and therefore time was on my side. That was a mistake.
Networking is extremely important, and finding the time to foster a growing network of forward-looking and energetic individuals who can guide you in your investment decisions is very important.
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