Dear Friends;
Our co-founders of Diverse Investing are very excited to bring you the first newsletter of Diverse Investing for 2021. The reason why our founders have put so much effort in developing this platform was because we felt that it was extremely important to help our local investors, struggling retirees, and business entrepreneurs, be aware of the changing global economic environment that might change their financial situation over the next few years.
Our goals are simple; providing education and alternative wealth/investment strategies to sophisticated and savvy investors pertaining to all financial vehicles (real estate, stock market investing, internet strategies, asset and liability protection, estate planning, business to business sales and more.) While at the same time help expand our member’s financial knowledge, teach our clients how to make better decisions when balancing their portfolio, provide coaching support and create a sounding board for other investors to meet and collaborate on all aspects of wealth management.
Throughout this year and upcoming years our members will be learning different concepts on how to diversify their financial portfolio through different investment strategies. Diverse Investing will find the smartest and best minds, pertaining to their specialty in the local community to provide the best financial education possible for our members. Our instructors have been hand-selected based on their experience and proven success in their given specialties. The instructors are interviewed and then selected to provide our clients with the best possible experience through videos, webinars, or classroom instruction.
The Wealth Alternatives Newsletter is just one of the tools that Diverse Investing provides to help educate our current members. This newsletter will be a bi-monthly publication on different topics of wealth strategies, ways to create passive income, views on the current economy, and what it takes to be successful as an entrepreneur.
Here are some reasons to diversify and protect your wealth. One reason is the uncertainty of the US markets and the world markets that are trending out of control due to massive amounts of debt.
The reason we need to be extremely carefully in protecting and diversifying our assets is because of two recent recessions that could have put the United States in a great depression if the Federal Reserve and Central Bank did not step in and lower the interest rate and print money to stabilize the economy. Americans are still not out of the woods yet, meaning the economy is still on the edge of going into a recession or a depression.
Let us discuss what brought us into these two most recent recessions and what we can do to protect our wealth. The two most current recessions were the housing market crisis and stock market crash of 2008 and the COVID-19 pandemic of 2020. I am going dive deeper and try to give some explanation of why both recessions happened, what caused them and what we can do to protect our wealth in the future.
Let’s look back to the great crash of 2008. Those were scary times with Lehman Brothers, Countrywide, General Motors, and others major companies, were heading to bankruptcy. Morgan Stanley and AIG and most of the large banking intuitions were also being bailed out by the government or other private conglomerates and private investors like Warren Buffet at that time.
How did most investors or financial advisors’ strategies through these difficult situations?
Most investors stayed for the ride, while other investors decided to get out of the market. Some investors were too scared to get back in over time because of the significant losses. The smart investors made money on the way down and on the way up. Which were you? The individual who stayed for the ride probably did not have the best financial advisor but better than the one who sold at the bottom. The best financial advisor saw the crash coming and positioned your portfolio for a defensive play or took most of your assets down to cash or other safer vehicles. Only a very few hedge fund managers made money on both sides, especially the downside. Again, what camp where you in?
As we all know, the individuals who stayed, did retain their principle, or grew their principle above their base line of 2008, thanks to the government bailouts and low interest rates by the government. Sorry to say, the individuals who got out had a substantial loss including their time curriculum to regain their profit.
So, what caused the crash in 2008 and will it happen again?
Through my research, there were many factors. However, to keep it simple, I will just name a few things that played a key role in the crash of 2008. The first leg of the crash was caused by George Bush and congress pushing a law through that allowed all individuals the chance to become first-time home buyers. Next, Alan Greenspan lowered the interest rates and then kept them at a low benchmark for far too long. Also, Bill Clinton and the Republican congress decided in December 2007, by one vote, to overturn the Glass-Steagall Act. The Glass–Steagall Act, also known as the Banking Act of 1933, was passed by Congress in 1933 and prohibited commercial banks from engaging in the investment business. It was enacted as an emergency response to the failure of nearly 5,000 banks during the Great Depression. The reason this law changed was because our large financial institutions and lobbyists were tired of seeing the internet tech giants get super rich through the stock market at that time. They wanted to come up with a way the large banking industry could capture more revenue. After the law passed, the banking and financial institutions began to make financial vehicles that would benefit themselves and the public. However, as we all know, they lacked regulations.
These vehicles were called_ derivative, mortgage-backed securities, and credit swaps. Mortgage-backed security (MBS) is a type of asset backed security that is secured by a mortgage or collection of mortgages. The mortgages are sold to a group of individuals (a government agency or investment bank) that securitizes or packages the loans together into a security investor can buy. These financial institutions learned to create large sums of wealth for the banking intuitions.
Manipulation of derivatives and mortgage-backed securities with the lack of regulation caused the fall of the real estate and stock market in 2008. Some stockbrokers took advantage of this situation and started to short the stock market. The market began to crash. Most of these banking institutions cleaned their books by selling these assets to Europe before the crash, which also drove Europe’s economy into a major recession. With these few key changes from Congress and our President in 2008, the great recession was born. Ten years later, due to over regulations by the first President after 2008, our economy was still barely running with a 2.0 gross domestic product (GDP) and our National Debt has ballooned up to $20 Trillion. The economy was starting to turn around by our next president reducing regulations for the small businesses, and then a virus from China hit America. The government had to shut down the economy for a whole month to try to stop the spread of COVID-19, which is the disease caused by the SARS COV2 coronavirus. This virus originated in Wuhan, China. Some experts said it came from a China wet market where they sold bats because the coronavirus is linked to bats. Other experts said that it came out of an Institute of Virology lab built to research and understand how these viruses’ function. No matter where it came from, the virus came to America and has killed over 500,000 plus people and infected over 114 million people.
In March 2020, the President and Congress shut the country down for one month hoping that the virus would decline or go away. At the same time, the Federal Reserve lowered the interest rates to zero and the government launched the CARES Act that put $1,200 into almost everybody’s pocket and tried to save the economy and the small businesses. The loan to the small business did not need to be paid back if the business owner kept their employees working for an extended period of time.
After reopening the country, state by state, the virus started climbing again and many small businesses needed to close their doors again. In September, students returned to school and over 50 percent of the college students were infected with the virus. Again, another delay for businesses to move forward and open up. Of course, during all this time, nobody was traveling which also put a damper on the economy. Congress is thinking about releasing another stimulus package for $908 billion called the COVID relief bill which helps small businesses, the post office, extended unemployment and at the same time gives almost everybody another $600 in their pocket. So now the Federal Debt will climb to approximately $27 Trillion. As we all know, when an economy comes to a complete stop and nobody is spending money, the economy can collapse. Without money flowing through the economy, our system could easily shut down
and head for a great depression. In the meantime, with the Central Bank printing all this excess money, if this does not stimulate the economy, then we will be heading for a massive downward spiral. On the opposite side, if the Central Bank prints too much money, we can have hyperinflation. If we get hyperinflation, the value of the dollar will decline, and it will take more dollars to buy the same product you bought two years ago or just last week. The United States also could lose the dollar as the world currency. It is extremely important for our government and central bank to deleverage our economy for a smooth landing over time. Deleveraging means simultaneous reducing the debit while keeping the economy in a state of growth (GDP) above 2 percent throughout the years. So, I am telling you now that I am overly concerned about how our government can or cannot balance this deleveraging act to lead to a smooth landing. We could easily be in a great financial bubble, which could lead to depression or hyperinflation. Remember, you can always make money on the way down as well as on the way up.
The question is, will our economy recover, or will we go into a great depression or hyperinflation? As I see it, the only chance for America to recover is to find a vaccine to get people back to work and get the economy moving again. If we receive a vaccine by January, then we could make a V-shaped recovery and gently pull ourselves out of this tremendous debt obligation. However, the economy is still in terrible shape and is only being propped up by the Central Bank. Any other disaster would crush the economy which would lead us into a great depression. If this happens, we will continue to print money, but the money will have no value since we will be in hyperinflation. The country will move toward socialist ways and, of course, the government will tax the rich tremendously. If the country goes into a U-shaped recovery, the economy will struggle for three to five years to return to some normalcy or positive growth to pay down the federal debt. The federal debt ceiling is now close to $27 Trillion. That being said, since the 1800s, there have been thirty financial crises that have affected the financial markets and America has always seem or found a way to pull out of those crises.
Was your financial portfolio or financial advisor prepared for one of these situations? Was your business prepared? Did you have a network to help you find distressed property or businesses? Were you educated enough to make the right financial decisions?
Let’s look back again at 2008 and 2020 and ask ourselves if we were prepared for this financial storm. Did we make the right decision on who our financial advisors were or how they managed our own portfolio through these turbulent times? Did we buy or hold the right assets? Did we have the right asset protection during these turbulent times? Keeping yourself diversified with all wealth strategies can save you from a financial meltdown.
So, what should you do to diversify and why?
Let us start with stocks. A good rule of thumb is to have more than one financial advisor. However, make sure that each advisor has a different contingency plan compared to the other advisor. If you have your assets, with a hedge fund manager this is also a great way to diversify and possibly make a larger profit. Even though one or the other advisor might give you better returns, overall, your wealth is diversified into many different strategies and categories creating a more balance portfolio. The only downfall of diversifying into many different advisors is that your total portfolio will have less money to compound with or generate cash flow through certain dividend stocks.
Once diversifying your financial advisors, I would diversify your stock portfolio by cash, stocks, ETFs, mutual funds, REITs, Emerging Markets, commodities, and gold. To me, bonds are questionable at this time, but hopefully your financial advisor will direct you in the right allocations.
I would also be making sure that you have some strong dividend stocks to create the passive income that you are looking for.
In your portfolio, I would always have either gold or silver as a hedge for a downturn in the economy just in case we recalibrate our currency back to the gold standard. The gold standard is when our dollar is backed by gold. In 1971 Richard Nixon decided to take America off of the gold standard. Our debt has been consistently increasing over the years because of this decision by the government.
Gold and real estate are the strongest physical assets to hold in a downturn, recession, or hyperinflation. In a deflation scenario, real estate will decline but will hold its value stronger than the stock market. Another advantage is that real estate will also bring in a cash flow if you decide to rent the property. In a hyperinflation environment, even though the dollar is falling, your assets will go up. So real estate is a good asset going into and during a financial crisis. Gold should also hold its value or increase its value during these turbulent times.
Having a strong business is a great way to diversify your assets. Due to the pandemic, there will be more people staying at home, either because they are working from home or they may have lost their job. A web business is a great way to generate income. If you are wealthy enough, owning many different businesses whether on the web, brick and mortar or real estate will help diversity your wealth.
Collectibles are a good asset to pick up during a downturn because they could be acquired at a distressed price. In times of trouble, individuals will be selling their assets to make ends meet.
Another way to generate income or passive income through diversification is by peer–to-peer lending. Peer-to-peer lending is where you can put money toward a company, as a loan, through an online business and receive back the original loan plus interest. This is a great way to create passive income if you do not want to do anything but just sit back and collect your check. However, make sure you pick the right business because, in a downturn, the business might not be around to pay back your original loan plus interest. Sometimes this vehicle offers a higher rate of return than normal financial vehicles such as CDs and bonds. Some peer-to-peer lending companies are Lending Tree, Lending Club and Fun Rise.
Buying other currencies or placing dollars in other currencies are also a way to diversify. If the United States loses the dollar as the world currency, then it is wise to diversify the dollar into other currencies. I recommend Chinese, Singaporean, and Swiss currency.
Others way to diversify your wealth are by legally moving your money offshore by purchasing assets overseas. There are beautiful countries that have less restrictions than the US and you might want to set up shop there. You might consider even having different bank accounts throughout the world in case times really get tough. For me, some of these locations are Lisbon, Montenegro, Singapore, Switzerland, and Malaysia.
Sometimes in times of crisis, being a US citizen does not always give you the luxury to fly everywhere. There could be restrictions as a US citizen when moving around the world. However, if you have a dual citizenship, St. Lucia, you will probably have easier access to travel or fly throughout the world and set up residence with the countries mentioned above. A good overseas attorney could help you with this process.
I hope this help when considering how to diversify your portfolio and protecting your wealth.
Stay Smart and Stay Diversified.
For more information on the rules of money you can go to www.DiverseInvesting.com or purchase The Road Map to Investing on Amazon.
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