In a recent MSM Money article, "bond king" Bill Gross -- managing director of PIMCO -- discusses the current economy and voices his opinion that the credit based financial markets are running out of steam. According to the article:
"The problem the managing director of PIMCO sees is that the domestic economy is going to be suffocated by debt. Not just government debt. But by consumer debt and corporate debt as well.
The result will be that everyone will be working just to service their debts, and the economy won't grow. Everything will just stall out."
In the article Gross mentions several ideas for what investors might do, one of which includes, dumping financial assets in favor of hard assets. As Gross puts it, "Gold, other commodities, anything that can't be reproduced as fast as credit."
I've had the same thoughts regarding "hard assets" over the past few months, as the disparity between what is going on with both the US and global economy and the US stock markets just doesn't seem to be adding up. Something doesn't feel right to me, and therefore, I've been taking steps similar to Bill Gross' advice of investing in physical assets.
While I might not consider a home an investment these days, I do consider it an asset, and a real asset at that. Therefore, over the past few years, we've been putting our money toward paying down our mortgage (which we did in our first home), and eventually paying off our mortgage (which we did several years later with our second home). Without a mortgage, we have a physical asset (our home) in which we not only can retain some of our money, but that allows us to live in it whether or not we can afford mortgage payments.
Personally, I'd like to own land as well, but at this point in our financial lives, it just isn't economically feasible. However, this is another area in which I would be interested in investing down the road in an effort to further realize physical assets that could not only appreciate over time but that could provide a variety of other physical resources -- wood, game, fish, crops, etc. -- if ever needed.
I'm also an owner of actual silver. While I don't own vast quantities, I think at least having a small stock of physical silver can be a good hedge against inflation and economic strife. I like gold as well for longer-term investing, but at this point in time, I just don't think the appreciation value is there compared to silver and I don't have the available funds for buying into gold at its current price. I also think gold is a harder asset to re-convert to cash if necessary as gold coins aren't recognized as easily as silver coins and might also be more prone to counterfeit.
I'm a firm believer in being ready for a variety of emergency scenarios, but in my opinion, having more than just a cash emergency fund on hand for such situations can come in handy and serve as an investment in hard assets as well.
We tend to keep a multi-month supply of food on hand not only as a hedge against emergencies, but to help us invest in longer lasting foods when they are on sale or when we have an idea that prices will be going up in the near term. If you think about it, this is kind of like playing the commodities and futures market, but at the grocery store rather than on a trading floor. We're buying actual canned, dried, or frozen foods in their physical form instead of paper form. Then, through proper rotation of stock and resupply, we're able to consume our food while maintaining an investment of sorts in real assets.
Personally, I think that anything that retains its value well and could be relatively easily traded or exchanged for cash, other goods or services can make for good real assets. Some of the items I consider for this area are tools (the old fashioned kind that don't have to be plugged in to be useful), camping equipment and emergency supplies (propane, batteries, candles, etc.), generators, and even alcohol (I saw a show once where I guy was stockpiling it for possible bartering scenarios even though he didn't drink) are a few such options.
Knowing how to exchange such goods -- whether through online sales, resale shops, consignment shops, flea markets, or garage sales -- for cash or other goods and services can be an equally important part of having real assets as part of my investment portfolio.
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The author is not a licensed financial professional. The information provided in this article is for informational purposes only and does not constitute legal or financial advice. Any action taken by the reader due to the information provided in this article is solely at the reader's discretion.
Blaine, Charley. MSN Money. "Bill Gross fears our borrowing could doom us". February 1, 2013. http://money.msn.com/now/post.aspx?post=85b435ce-4a63-4734-bf7a-adf1b286b583. February 6, 2013.