Moving On…

Although I find the topic of Fear and Greed most fascinating, I believe that it’s just about time to move on. For one, I’m tired of talking about it, and two, I’m guessing you’re even more tired reading about it! 😉

So, this post will simply be a recap of everything that I’ve published over the last few weeks…

As always, I’ve never claimed to have any of the right answers. I can’t say that I know what will happen in the future, and I certainly can’t make claims that I know what I am doing… All that I do know is this: I’ve spent the last 3-4 years attempting to build up wealth, and now my main interest is in protecting it.

From the last few posts, you can obviously see that my changing strategies have elicited mixed reactions from readers. There have been some great discussions and comments… For the most part, I believe that the majority of people understand where I am coming from, but a slight few have been more negative, and emotionally charged… For anyone who still doesn’t believe that investing is emotional, just go back and read some of those threads! 😉

That’s not a bad thing. It is very tough to invest stoically and without emotion. I definitely won’t deny that emotions have an impact in the way I invest — otherwise, why I would be doing things such as running doomsday scenarios?

But in any case, I just wanted to be crystal clear on this point — I’m not trying to outsmart the market. I’m not changing up my investing approach hoping to eke out more massive returns. And I’m not encouraging anyone to invest the same way that I do…

Your goal may be to build wealth.

My goal (right now) is ONLY about preserving wealth.

It’s all about safety and defense.

You know, when it comes to sports, it’s very common for collegiate athletes to take out an insurance policy as they enter their final season prior to declaring for entry into a professional draft. In many cases, these aspiring professionals take out policies that are in well excess of $1MM.

Why? It’s not because they think they are more special than everyone else… It’s not arrogance… If anything, it’s a sign of humility… Things CAN go wrong, and things DO go wrong in this world… It is very possible for someone to have worked hard their entire lives and then lose EVERYTHING!

That’s why people buy life insurance, car insurance, fire insurance, flood insurance, earthquake insurance, etc., etc.

Do these people get ridiculed for being “speculators”? I wonder…

Most recently, I decided that I had more than enough assets under my belt. Of course, I could always chase for more, but in order to get to early financial independence, I was already set. When I started investing in stocks again, I realized that my intentions were spun out more from GREED than anything else… It wasn’t crystal clear at first, but when I finally could see that, I knew that I had to divest away from stocks and liquidate a majority of my individual stock portfolio. I still kept around $15,000 to trade in the form of Dividend Growth Trading, but for all intents and purposes, I was able to pull out the funds that were acquired via the means of two cash out refis.

By doing that, I was sitting on a lot of cash. Yes, you can NEVER have enough cash, but from an asset allocation point of view, I was sitting on more cash than perhaps I ever had on hand at any point in my life…

So, I started to consider other “cash-like” solutions.

The last post I wrote was about purchasing precious metals (gold and silver). Up to this point, I had a 0% allocation into precious metals in my portfolio. So, I asked myself, why would anyone ever “invest” in such a thing? When I conducted my research, I quickly realized that people don’t “invest” in precious metals… They do so with the expectation that their “investment” will simply store value over a long period of time.

Gold and silver are a form of insurance… Just like your car insurance.

If you don’t believe that gold or silver can store value, that’s perfectly fine and no one says you have to invest in them at all. When I asked myself the following question, it became a no-brainer to me as why I needed to at least consider it: “If you could put one item under a mattress for the next 20 years, would you rather have a dollar bill or a gold coin?

After 20 years, who knows what a $1 bill would buy you… But a gold coin should be able to purchase you the same amount of goods as it does today. Precious metals are a hedge against declining purchase power. And economic turmoil.

For me, knowing that alone was enough reason for me to ultimately conclude that I should own an allocation of precious metals in my portfolio. However, I did do more research and I posted a lot of viewpoints from others in the precious metals community to share with readers (I’m not suggesting their opinions are right and those things will actually happen!).

But as always, I think it’s important to consider all possible scenarios and to remain open minded.

I’m not an economist. I’m not a politican. I don’t work on Wall Street. I have no insider information intel… I can’t even predict with any degree of accuracy what I will have for breakfast tomorrow morning…

So what else can I do but listen and learn?

I believe that many readers appreciated the last post, as coincidentally (or not) I’ve seen a strong uptick in blog subscribers. That’s always a great thing! THANK YOU! 🙂

Again, I feel like what I am doing is best for my own particular situation; the same does NOT have to apply to you or anyone else. Further, it’s not an indictment on any other forms of investing (which is what I think ultimately stirs the pot with some people)… I see the merits of stocks. I see the value in real estate. I think those are wonderful investments and I’m still heavily invested in them!

But I also don’t have an unrelenting affinity for them. If someone were to approach me and say, “Bay Area real estate sucks! It’s totally overpriced right now!” I would nod, smile and agree… I wouldn’t feel insulted in the least bit…

On the other hand, if a new investor was just starting out and said, “I really want to start buying properties. Could you help me learn more about Bay Area real estate?” I would be delighted to help and share with that person the things that I’ve learned over the past few years.

Hey, just because buying more real estate isn’t the right move for me at this particular moment in time, does NOT mean it won’t be a good opportunity for someone else! I totally realize that… which is why I always try and put myself in someone else’s shoes… It does me absolutely no good to be so quick to judge… And as I’ve learned over the years, you make a lot more friends when you play nice too! 🙂

Anyway, in the end, I feel like we are all fighting for the same thing and on the same team anyway — We are financial freedom fighters who are doing everything we possibly can to create a better future for ourselves and our family.

And that’ a wonderful aspiration!

I’m going to support everyone who is out trying to achieve such a wonderful goal!

I’m an easy-going, optimistic guy. So, I’m done with the “doom and gloom” stuff. I did my best to stay open minded and consider all scenarios; I’m happy with the measures I’ve put in place to better protect my own portfolio. Further, I believe that readers have benefited and can appreciate hearing things from a different angle (it can’t always be sunshine and lollipops).

In the end, I just wanted to diversify my portfolio away from real estate and stocks (which I am heavily weighed), and to me, purchasing precious metals was a means of taking out an insurance policy for my overall portfolio. Holding more cash than I usually do is another way I’m attempting to protect my assets.

As always do what’s best for your own situation.

 

I will conclude with this great quote: “Greed is taking the steps UP to the top floor of a building. Fear is taking the elevator DOWN.

 

Now, it’s time to move on already!

 

I’m not actively investing in stocks or real estate right now, but if you ever want to talk shop, I’m always interested and willing to help (however I can)! 🙂

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ambertree
5 years ago

Hey FI Fighter,

The last few posts you made were an interesting story. I fully understand your move towards protection. You need to find the asset allocation and risk position that makes you sleep at night.
If the goal is to protect you, I then wonder if precious metals is the right move. I do think they have some form of protection against inflation. (I have gold in my portfolio as well) On the other hand, they are traded commodities, and thus subject to strong price evolutions. How do you see this?
amber tree

The Dude
The Dude
5 years ago
Reply to  FI Fighter

I think it’s important to understand the historical significance here. During this time, it was a period of deflation as you said. Because the country was on the gold standard, the supply of gold needed to be increased in order for the money supply to be increased. Because the amount of domestic gold was not sufficient, the price of gold had to be raised in order to attract international investors to sell gold to the United States. Once sufficient gold had been acquired, the money supply was increased Because of the increase of the money supply (M1), GNP output was… Read more »

The Dude
The Dude
5 years ago
Reply to  FI Fighter

Cash is absolutely king in deflationary environments. No doubt about that. However, deflation is so extremely rare that it’s not worth worrying about. Since deflation has happened only twice in the last 60 years, both of which were temporary, it’s probably not worth hedging against. It would be like a new real estate investor coming to you and insisting on installing a hurricane proof roof on the house they just purchased in Eastern Oregon. That would probably not be worth the expense. I guess it might be possible that there could be a hurricane in Eastern Oregon at some point,… Read more »

george puck
george puck
5 years ago
Reply to  FI Fighter

Actually you can think of the exchange as happening because the owner of the contract has the right to take delivery on the contract. YEs they can close out the options and have them paid out etc. But one can always take physical delivery of a commodities contract. I wouldt get too caught up in who has physical metals. those positions can be, and likely would be unwound in the crisis. IE you might well see the price of gold or silver tank in a financial crisis as China, or Russia or India dump their metals in order to buy… Read more »

Dividend Beginner
5 years ago

Hey FIF! Another delightful post. I’m sorry you got so much negativity on the other; I read most of the comments. There’s nothing at all wrong with playing defensively, if anything that’s what “The Intelligent Investor” taught me a bit of. Preserving capital is of utmost importance. If diversifying into precious metals is your thing today, go for it! I’m just glad you took the time to write so much and educate me a bit. I’m happy with my mining company for now, but we’ll see where things go. I do believe silver is a bit of a better investment… Read more »

The Dude
The Dude
5 years ago

Glad to read the follow up. Some thoughts: • I’m not sure I completely buy the argument of not speculating. I can understand the insurance analogy, but I don’t think that’s entirely what you’re doing. We can shop around for insurance to find the best price, but we typically don’t say, “now’s a great time to buy insurance because the current prices are at historic lows and I believe there’s a lot of potential upside” • I can understand adding a small amount of precious metals to your portfolio, but if you’re looking for an inflation hedge, you should have… Read more »

The Dude
The Dude
5 years ago
Reply to  FI Fighter

#2 I can completely understand the desire to have more cash on hand #3 This is where I would challenge you. Gold is not money by definition. It was used as money in the past, but it is no longer money. It is a metal. According to modern portfolio theory, gold is not even included. The reason why is that it has low return and high volatility. This is not a good combo and is why I would question whether or not it actually meets your investment objectives. I would encourage you to take another look at the data before… Read more »

The Dude
The Dude
5 years ago
Reply to  FI Fighter

#3 I can respect that. To me, the fear of a complete economic meltdown might seem irrational, but I understand that people have different views on this topic. If you feel like this is the best hedge, go for it. My thought would be that you wouldn’t be able to count on gold if you’re living in the US. Because money is used as a medium of exchange, and it’s unlikely that most people would have physical gold coins, it would be very unlikely to function as money. Let’s say you’re lucky and you can trade a gold coin for… Read more »

CashFlowDiaries
5 years ago

Well put my friend. I could tell you had some passion writing this one. I only hope some day I get to the point where I just want to preserve my finances.

Tawcan
5 years ago

Very well put together. I love this quote:

We are financial freedom fighters who are doing everything we possibly can to create a better future for ourselves and our family.

Thanks for sharing your thoughts with us. I enjoyed reading this post.

John
John
5 years ago

As a fellow Asian I totally agree with you that folks from India and China hoard gold for a reason 🙂

BTW here is an article endorsing your ideas on using dividends for income. http://blogs.wsj.com/totalreturn/2015/05/28/buy-dividend-stocks-for-retirement-income/

Living in the Bay area I missed the real estate opportunity because I did not have enough knowledge :(. Hope to learn more about investing in RE

Matt R
Matt R
5 years ago

This reminds me of an article I read recently on BiggerPockets about the 5 rungs of wealth:
1. Support Yourself
2. Save
3. Invest for growth
4. Reduce Risk
5. Hedge for unpredictability

Welcome to rung 5!

http://www.biggerpockets.com/renewsblog/2015/04/22/5-rung-ladder-financial-independence/

No Nonsense Landlord
5 years ago

While you may need to protect your wealth, you need to understand that you have 50+ years left on the planet. Protecting it now, with a less aggressive approach, will leave you short in 20 years. Equities seem to be the best solution, at lease for the last 130+ years. A diversified indexed portfolio is a solution that has worked through thick and thin. A million dollars is not a lot of money for someone to live on for 50 years. If you only had 25 years, it is a lot more money. In your case, (and mine) much is… Read more »

kyith
kyith
5 years ago

i guess the reason there are folks critical about it have been the long time fly on the walls who have watched you evolved the narrative of being a dividend growth investor to a property rental owner and now to that of a trader. There is a part of the message as a dividend growth investor on why doing it long term have its advantages, how you should work out the volatility to invest long term. I am sure you would have written about that. ditto for real estate. Now imagine them seeing the message evolve that you have to… Read more »

Bob Tennant
5 years ago

From everything I ever read on the subject of investing, a diversified portfolio works the best, hence the “don’t put all eggs in one basket” saying. With that in mind, I’ve been thinking about allocating weight among investing alternatives. More specifically, if I have growth-oriented investments, sustaining ones, defensive measures, short term speculations and outright gamble attempts, what percentage of my assets should go towards each of these. 1. Stocks with strong fundamentals yet not large companies thus far – growth 2. Renting rooms out and dividends issuing stocks – sustaining wealth 3. Precious metals – defensive measures 4. Day… Read more »

The Dude
The Dude
5 years ago

Gold prices are down 8% since this writing. In that time there has been a Chinese stock market crash and a debt crisis in Europe.

Has any of this changed your viewpoint on gold?