One of the biggest questions for US investors is how to protect your buying power in the fiat dollar regime.
The answer is simple.
Buy what can’t be inflated away. In a world of abundant money creation, buy tangible assets that are in scarce supply.
Not only will they protect your wealth… you can also profit as the value of the dollar falls.
That’s the recommendation from today’s guest author Rich Checkan, president and COO of Asset Strategies International.
If you’ve ever worried about how to protect the buying power of your savings, today’s essay is a “must read”…
How to Profit from Washington’s Broken Promises
By Rich Checkan, President and COO of Asset Strategies International
Take a dollar bill in your hand and look it over for a second.
What is it?
It is a promise from the US federal government. Implicit in this promise is the government preserving the buying power of that piece of paper.
If the government keeps its promise, you will be able to buy the same amount of goods and services for that dollar bill as you can today…5, 10, 15 or more years from now.
The problem is governments don’t keep their promises.
The dollar continues to lose buying power at an alarming rate as indicated by the chart below produced by the St. Louis Fed.
Unfortunately, history tells us this trend is not likely to be reversed. As Bill regularly reminds readers, no fiat currency has ever stood the test of time. They all lose value due to government mismanagement of the currency.
The promise is a hollow one.
But you can protect a portion of your overall assets with intrinsically valuable rare tangible assets (or RTAs) – things like gold, silver, platinum, palladium, rare US and ancient world coins, and rare stamps.
Over time, although the dollar loses value, real assets such as these hold value. So, when needed, you can cash them out for more dollars than you initially paid – and still be able to buy the same amount of goods and services you used to be able to buy with your original dollar.
Governments may fail to keep their promises to you. But you can still preserve your buying power… which, after all, is your hard-earned wealth.
A Special Kind of Market
Take a look at the following charts. The first compares rare stamps and rare coins to a variety of other common investments.
The next chart shows the appreciation of various collectibles – from antique jewellery… to art… to fine wine… to rare stamps and rare coins.
These assets are being measured with steadily depreciating (in the long term) fiat currencies. Remember, the US dollar has lost more than 96% of its buying power since the creation of the Fed a century ago.
But the key driver of RTA prices is the same reason there is little to no volatility and even less correlation to other assets and markets. RTA markets are driven by collectors… not investors.
Picture yourself as a collector of rare stamps. You just spent the better part of a decade searching high and low for the last stamp to complete your collection. You found it. And although it may be a bit pricier than you imagined, it is there… right in front of you.
Assuming you could afford the asking price, do you snatch it up to complete the collection? Or do you risk the possibility of another decade-long search for another example?
I think you get the picture.
Now consider the following:
• Ben Bernanke announces the beginning of QE3.
• Vladimir Putin’s soldiers take a stroll down the Crimean Peninsula.
• Janet Yellen announces QE3 will be unwound by the fall.
• Tensions in Israel and Palestine escalate to armed conflict.
• Bear Stearns collapses.
• AIG fails.
• Real estate values plummet worldwide.
Given what you went through to acquire your prized stamp, or coin, would you even consider for one second selling it?
Of course you wouldn’t.
That’s the power of a collector-driven market. The stamp, or the rare coin, is in strong hands. And there it will stay as time marches forward, as the value of your RTA rises because it’s priced in depreciating dollars or euros.
5 “Golden Rules” for RTAs
So, how do you spot rarity?
On May 30, 1903, in the Stanley Gibbons Monthly Journal, there appeared an article written by Charles J. Phillips titled “Stamp Collecting as an Investment.”
Mr. Phillips reveals five “golden rules” for collecting the right stamps for investing success. You can use the same five rules for any RTA.
1. Quality/condition – Ensure you buy those in the best condition.
2. Price – Buy the best you can afford.
3. Provenance/authenticity – Make sure you can guarantee the authenticity.
4. Liquidity – Make sure there is a market for your items.
5. Price – Buy the best you can afford.
I believe we each have a little bit of the collector in us. But I know we all are investors first and foremost. By using Mr. Phillips’s “golden rules” to add RTAs to your portfolio, you can ride the coattails of collectors to achieve consistent gains with minimal volatility in your investment.
As a rule of thumb, we favor a 3% allocation each to rare coins, rare stamps, and other rare tangible assets.
This will allow you to profit from Washington’s broken promises… and the steady erosion of the dollar’s buying power.(the talkmarkets)