Where to Invest?

I have a different brain, I have a different heart. I got tiger blood, man. Dying's for fools, dying's for amateurs.
Charlie Sheen

Have you heard about this one?

Scientists have discovered that deep brain stimulation in the entohinal area can lead to improved memory. It appears that stimulation in this area of the brain may reset the electric rhythm of cells and memory encoding in the hippocampus. Since the entohinal is an area of the brain that is one of the first to be damaged by Alzheimer’s, it also brings new hope that something can be done. For me, I am just glad I don’t forget to tie my shoes in the morning. We one day might be able to go into a body shop and get a brain zap to reset the old noodle and once again remember where we left all of our computer and access passwords.

Welcome to The Golden Sense! Sometimes I wonder if economists or the talking heads on the news networks are suffering brain damage. No matter how the stock market performs or how the economy is doing, their advice continues to be the same. Buy stocks. Spend your money. Recently, a 401k specialist came into my bank. He advised everyone to average into the market. That’s how to save and make money he says. It's the same story every time he comes in.  It doesn’t matter to these advisers that the stock averages have hardly gained any ground over the past decade. Sure, this strategy worked for some of the baby boomers. But it’s also been a cruel trick to others depending on when they wanted to retire. The thing is, the 401k guy isn't giving bad advice. It just too simple. Your investing strategy needs to be expanded upon. 


Friedrich Nietzsche said "Any explanation is better than none." And the simpler the explanation, it seems in the investment game, the better. We have become literally addicted to the simple explanation. The fact that we "know" (the explanation for the unknowable) is better than not knowing. Unfortunately, when it comes to finance and investing, it's impossible to "know" the future for certain.

 

 So what is the best way for us? Should we take advice from these 401k salesmen? Their advice isn't wrong. You just shouldn't have all of your eggs in one basket. With the amount of uncertainty in the air, we have to be careful.

 

The great Richard Russell is the oldest advisor in the business. He thinks that our task in the years ahead will not be building potential profits; rather it will be how to avoid losing purchasing power. What will this mean to us as young investors?  It means make your money and then try to retain its value. Until 2009 I think the idea in America was to make as much money as you could and to live as well as you could. The US was the land of leveraging, borrowing, credit and opportunity. From 1982 to 2007 the stock market climbed steadily higher, and those who owned stocks prospered. After 2009 it was a different story. I believe that from now on, the idea will be to hang on to as much of our wealth as we can. In other words, from here on the trick will be to avoid losing money. In the business of investing, the correct stance is to "go with strength." My suggestion is split the majority of your money into three categories:

Cash, Gold, and The Permanent Portfolio Fund. You could also have a small 401k but preferably a Roth IRA.

Okay Todd, that sounds like a large collection of assets. I just wish I had some extra cash.

I know, I know. The best thing to do when starting from scratch is to acquire each one of these categories one at a time.

So why these items?

Cash:

When I say hold cash, that means have a portion of your assets in a money market or checking account that is easily accessible. It’s always good to have cash on the side. Currently the world uses U.S. dollars. Despite the fundamental problems with the U.S. dollar, it is still used as a medium of exchange. Having extra cash allows you to be free and able to move. Cash is a comfort everyone should have. It gives you the freedom of choice.

Gold:

Gold is the oldest form of money in the world. It’s the oldest form of money because it is the best. Its always  retained a stable value throughout history. And that's why we should go for the gold. It is said that given time, fiat money will move towards its intrinsic value, which, of course, is zero. This is the dreaded secret that the Federal Reserve does not want you to be aware of. The beauty of gold is that it's international and beholden to no one. If the Fed could put a cap on gold it would. But gold is traded 24/7 around the world. Gold is the ultimate economic independent. It's outside the grasp of any politician, which, by the way, is why most politicians despise gold. Gold has been in a bull market for the last 12 years. Its out performed stocks and it is still not too late to jump on board. I recommend buying gold Krugerrand coins, bullion through Bullion Vault, or buying shares in the exchange traded fund GLD. I see gold as "must have" asset in today's world.

The Permanent Portfolio Fund:

The Permanent Portfolio Fund seeks to preserve and increase the purchasing power value of its shares over the long term. The fund invests a fixed target percentage of net assets in the following investment categories: gold, silver, Swiss franc assets such as Swiss franc denominated deposits and bonds of the federal government of Switzerland, stocks of U.S. and foreign real estate and natural resource companies, aggressive growth stocks and dollar assets such as U.S. Treasury securities and short-term corporate bonds. This mix of assets allows your investment to retain value in the face of an inflationary or deflationary economic environment. You can start an account with the Permanent Portfolio Fund at http://www.permanentportfolio.com/. Its ticker symbol is PRPFX. The performance of the fund is shown below.

Add a 401k or a Roth IRA-

It's also very important to take advantage of tax free growth with a 401k or a Roth IRA. In both of these retirement accounts you can invest in stocks, or design a portfolio that suits you best. If your employer offers a 401k program, then you might as well jump on board. Employers often match your contributions to your 401k. This is essentially free money. So take advantage. If you don't have a 401k then start a Roth IRA. This will help you take advantage of the probability of higher taxes in the future. These assets are important to your retirement.


The most important concept to understand is to keep your money diversified. That means placing your money in many different areas and under different types of financial instruments. I believe this will provide safety and success as we navigate the unknown.

Sincerely,
T. Norman


Stay tuned: The Golden Sense will be joining Twitter in the upcoming months.

The Academy Awards drew over 39 million viewers Sunday night. Apparently, I need to see the movie The Artist. It won five Oscars including best picture along with best actor. I saw that Meryl Streep won best actress again. I didn't see her role in The Iron Lady, but I was rooting for Rooney Mara because she put in an incredible performance as the chilling Lisbeth Salander in the movie The Girl with the Dragon Tattoo.

Looks like next month we will see the return of Mad Men to AMC. The prior four seasons were so good. Mad Men was undoubtedly the best show on television. After a long break I hope they can keep the story line going.


Warren Buffet is the owner of Berkshire Hathaway and is one of the richest men on the planet. In his annual shareholder letter he had this to say:

"In the U.S., where the wish for a stable currency is strong, the dollar has fallen a staggering 86% in value since 1965, when I took over management of Berkshire. It takes no less than $7 today to buy what $1 did at that time. Consequently, a tax-free institution would have needed 4.3% interest annually from bond investments over that period to simply maintain its purchasing power. Its managers would have been kidding themselves if they thought of any portion of that interest as “income.”

"For tax-paying investors like you and me, the picture has been far worse. During the same 47-year period, continuous rolling of U.S. Treasury bills produced 5.7% annually. That sounds satisfactory. But if an individual investor paid personal income taxes at a rate averaging 25%, this 5.7% return would have yielded nothing in the way of real income. This investor’s visible income tax would have stripped him of 1.4 points of the stated yield, and the invisible inflation tax would have devoured the remaining 4.3 points. It’s noteworthy that the implicit inflation “tax” was more than triple the explicit income tax that our investor probably thought of as his main burden. “In God We Trust” may be imprinted on our currency, but the hand that activates our government’s printing press has been all too human."