Protect Wealth From Inflation

8/6/2019 Protect Wealth From Inflation

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How to Protect Your wealtH

By Christian Hill


http://slidepdf.com/reader/full/protect-wealth-from-inflation 2/91 How to Protect Your Wealth | By Christian Hil

How to Protect Your WealthBy Christian Hill

The biggest single threat to your wealth is not the overvalued stock and bond markets but the

very likely probability o a sudden and ruthless period o ination.

You don’t have to be an economist to understand why.

Ination means rising prices. When the stock market went up rom below 700 in March 2009to 1,200 in April 2010... that was stock ination. When home prices rose by 80% rom 1997 to2006... that was real estate ination.

You can make a lot o money during inationary periods i you buy early (while prices are low)and sell later (when prices are high). But you can get killed i you wait too long and buy late(when prices are high) and then are orced to sell (when prices are low).

So the trick to proting rom ination is to understand the trend. Getting in early and gettingout early.

Pretty simple so ar, eh?

The reason the smartest moneymakers in the world are expecting ination now is because thegovernment has been spending trillions o dollars to try to keep the banks and brokers andinsurance companies rom going out o business -- even though those same banks and brokersand insurance companies are responsible or inating the economy to begin with.

The government will never, ever allow these institutions to “ail.” Because i they do, we will bein a real Depression... and then all the politicians we voted into oce will worry about losingtheir jobs. Since their cushy jobs (and amazing expense accounts) are their primary priority,they will always approve these huge bailouts -- even though they know that, eventually, theywill destroy the value o the dollar.

It doesn’t matter what party they belong to. The Republicans started the bailout programs andthe Democrats extended them. They ght about spending on health care, but they don’t ghtwhen it comes to the big nancial institutions.

The government didn’t actually have the trillions o dollars they spent on bailouts. They had toborrow it rom the U.S. Treasury.

And how do they pay back the U.S. Treasury? There are only two ways.

One is by raising taxes; the other is by printing more dollars.

Countless economic studies have shown that there is only so much money the government canget by raising taxes. I they tax people too much, the economy slows down.



And when the economy slows down, there is less wealth to tax... so the government’s incomeactually drops rather than rises.

Obama knows that he probably wouldn’t be able to raise taxes enough to pay of the debt in-curred by the bailouts. Still, he is going to try to tax Americans as much as he possibly can.

Where will the rest o the money come rom?

Obama also knows -- as does every other smart politician -- that there is a sneakier and less riskyway to pay back the Treasury. And that is to let the dollar collapse.

Here’s why: When the dollar depreciates (gets less expensive), it becomes easier to pay of bigdebts. Who wouldn’t want to be using today’s dollars to pay or gas that went or $1.50 10 yearsago? Or to pay or houses that went or $75,000, on average, 20 years ago? Well, that’s what thegovernment will be doing 10 years rom now: paying of a debt that won’t seem nearly as big asit does now because they’ll be paying with inated dollars.

A Two-Pronged Approach to Protecting Your Wealth

Traditionally, there are two types o assets that appreciate during periods o ination. One is realestate. The other is precious metals and commodities.

Step 1: Real Estate Plays to Make Now

It’s no secret that hal o the world’s richest entrepreneurs built their ortunes through real es-tate. What is less commonly known is that most o their great ortunes were made during ina-

tionary periods... like the one we’re acing right now.

Real Estate Opportunity #1: Taking advantage of real estate prices that are as low

as they’ve been in 20 or 30 years

It is impossible (and oolish) to try to predict the bottom (or top) o this (or any) market. But, byany measure, we have just gone through one o the biggest real estate recessions in the historyo the United States.

In South Florida, or example, you can nd properties or less than hal o what they were sellingor at the peak o the market. More important, you can buy these properties with 20% down

and start enjoying positive cash ow rom month one. (Four and ve years ago, you couldn’tget positive cash ow out o rental units with 50% down.) So today’s prices make sense rom abusinessman’s perspective.

My mentor - sel-made multimillionaire Michael Masterson - and his real estate partner Peterhave been buying homes in the $120,000 to $130,000 range (ater closing costs and renova-tions). Michael tells me they are getting monthly rents o $1,300 to $1,600 on these. He is nanc-ing our deals at 4% (which is good or him). At that rate, they are making about 6% to 8% ontheir money, not counting appreciation.



Michael says he will continue to invest in real estate so long as prices are low. I they go downurther, he’ll buy more aggressively.

He has no risk o losing money, because all the properties he’s investing in are making moneyon a monthly basis.

Even i rents drop, he won’t be losing money. The 4% to 8% yield he’s enjoying will cover himeven i rents go down another 25%, which is highly unlikely.

But the real opportunity is in the appreciation potential.

He ully expects to make an extra $10 million in appreciation in the next ve to 10 years as ina-tion pushes up real estate prices. He might make as much as $30 million, but he’s trying to beconservative.

I you can do the same thing - even on a smaller scale - you’ll be making a smart bet.

There are some who say that real estate prices won’t inate with the rest o the economy, but Ithink they will.

Here’s why. Buildings are built with core commodities... lumber, copper, aluminum, concrete,steel. Labor is another big expense. You can’t have ination without a rise in those costs.

Plus, properties in many areas are selling or less than replacement value. In some cases, even i you got the land or ree, you couldn’t build these homes or what you can buy them or today.

That’s even ater taking depreciation into account.

Last but not least, in many instances, it’s already ar cheaper to buy than it is to rent. Eventually,this will turn the tide toward buying. It’s just a matter o time.

So that’s my rst ination-beating recommendation:

Start buying undervalued, quality rental properties now.

Don’t wait or the market to bottom. Just nd properties that will give you a net cash ow o atleast 4% to 9% ater all expenses (including property taxes, maintenance, ees, etc.).

Real Estate Opportunity #2: Taking a position in businesses that are buying up

super-undervalued properties

One o the best-run companies buying up undervalued properties comes rom north o the border.

I had no interest in this company when real estate was booming. Their income rom year to yearwas lagging behind that o their U.S. peers. I chalked up their bad numbers to poor manage-ment. But I recently noticed that their numbers are much better... and I had to nd out why.



Turns out their reversal o ortune stems rom how they treated their tenants when propertyprices were soaring.

Unlike their competitors, they rerained rom putting the squeeze on their tenants by raisingrents to the max. As a result, when the Great Recession hit and most real estate companies had

a spike in vacancies, this one kept the vast majority o its tenants.

It now has a much stronger balance sheet and more cash on hand than most other real estatecompanies. And what is it doing with its cash? Buying up cheap properties to take advantageo what it calls “times o distress south o the border.” This company is laying the groundwork now or long-term growth. Over the next ve years, I expect its stock to advance by 60%-100%.

The company, RioCan, is Canada’s biggest real estate investment trust (REIT ). It owns Canada’sbiggest and best portolio o shopping centers -- 261 retail properties amounting to 60 millionsquare eet. You can nd it on the Toronto stock exchange under the symbol REI.UN.TO.

RioCan just bought an 80% stake in seven grocery-anchored shopping centers (that’s what itspecializes in) in the U.S. It acquired that stake by taking on Cedar Shopping Centers Inc. asits American partner. Beore they’re through, the two companies will be buying up a slew o below-market-cost properties. Just based on what RioCan’s CEO Edward Sonshine says, I can tellthat they’re drooling at their prospects...

“Many o the properties coming available in the U.S. are o exceptional quality, and are cur-rently being held by stressed vendors, constrained by a lack o liquidity. These vendors are notdisposed to sell due to issues with the property. Rather, many o these operators have dicultymeeting demands o lenders and satisying more stringent conditions on accessing capital. Assuch, acquisitions can be made at considerably less than replacement costs. In act, we believe

that the next 12 to 18 months are a time o unique opportunities or [RioCan].”

Besides shelling out $176 million or the seven aore- mentioned properties, RioCan and Cedar just bought their rst shopping center together or $20 million, with RioCan paying $16 milliono it. And this is just the beginning. Sonshine says that the company “has weathered the stormand is poised to seize the initiative.”

It has the money. It has the local partner to help it. It certainly has the determination. And theU.S. market is ripe or the taking. In other words, everything’s in place.

The company is or real... solid and ambitious at the same time. Plus, it gives shareholders 7.1%in cash every year just or owning its shares. In my experience, a company like this doesn’t staybelow the radar or long.

Step 2: Going for the Gold

Another way to protect your wealth rom rapidly approaching ination is to look to preciousmetals and commodities.



And, the best – and easiest – place to look is gold.

I you don’t own gold, you might want to start buying some now. I’m not your nancial advisor.But i I were I’d tell you that you should have enough physical gold and silver to keep you aoator two or three years.

I you can’t buy that much, you should begin to buy what you can. Don’t stop until at least 10percent o your savings are in precious metals.

You should do this not in the hopes that your precious metals will appreciate (although theyprobably will) but because at the very least they will hold their value during the coming storm.

Gold Opportunity #1: Buying Physical Gold

Few things are better than the eeling o holding real 100% pure gold in your hands. There’s areason gold is the world’s most coveted metal. It’s the shining standard o the precious metals

market, the one metal everyone wants to know… which means it holds it’s value much betterthan putting your hard earned cash into a run o the mill savings account.

Plus, the story is even better when the dollar depreciates.

Here are the top ve most commonly traded gold bullion coins in the world. This is where anynew gold investor should start:

1. South Arican Krugerrand

These were the most commonly traded coins in the last gold bull market and are still traded today.

2. Canadian Maple Lea

The coin was rst minted in 1979 and was an instant success. Like the Krugerrand, it contains aull 1 troy ounce o gold. It actually has a ace value o $50 (Canadian Dollars), which is ar less o course than the value o the gold bullion.

3. Australian Kangaroo

The “ROO,” as it’s called, replaced Australia’s “Nugget” coin. It also weighs 1 troy ounce.

4. Chinese Panda

The China Panda was rst introduced in 1982 and remains a popular choice or gold buyers.

5. American Eagle

This is the gold bullion coin that everybody wants. First minted in 1986, the American Eaglescomes in the standard 22-carat neness.



I know that Michael Masterson is a huge proponent o goal. He tells me that he started buy-ing gold about ten years ago and kept buying until he had accumulated his goal -- which wasenough that he could live on it or 10 years i he had to. This is obviously a lot more gold thanmost nancial pundits recommend. Having that much in gold in hand makes him eel sae inthe ace o potential economic disaster.

He bought bullion coins. Every month he bought another box o South Arican Krugerrands orCanadian Maple Leas and had them delivered to his house.

He only stopped buying coins when he reached his target. Gold was trading or about $800 anounce at the time. He had an intuition that prices would continue to inate, but he wasn’t tryingto game the market. He was trying to be sae.

I he hadn’t met his goal, Michael admits, he would have continued buying. Even today, withgold around $1,500 per ounce, he would still be buying.

You should strongly consider buying gold coins, as well. It’s at least worth consulting your nan-cial advisor about.

When buying gold and silver coins, be sure to buy top quality – coins that aren’t damaged inany way. Nicked or scratched coins won’t get you the ull value when you go to sell them. Andmake sure that you are not paying a big premium or them. Five or six percent is the absolutelimit, in my opinion.

Gold Opportunity #2: Mining Stocks

Another way to hedge against ination is to buy mining stocks. But this is an area you must be

careul when entering.

The mining business is problematic. It requires lots o expensive employees and capital equip-ment. Key employees jump rom one company to another without notice – especially when themarket is good.

In addition, the mining industry now aces extensive environmental and other regulations. Thatgenerally means two things: ineciency and extra costs.

And i all that were not enough, know this: mining is a boom and bust industry thanks to priceswings and unwillingness o banks to lend to small miners when commodity prices are low.

All these problems discourage smart investors rom putting their money in mining companies.And that is why, during the 20-year bear market in metals (1980-

1999), it was possible to buy mining companies very cheaply, based on their undamental values.

But all that changes when precious metals prices climb.



Gold mining stock move up rst and astest. But silver quickly ollows gold up. And platinum,copper and palladium can shoot up too.

The cheapest mines to buy are those whose metals are still in the ground. With the assets stilluntapped, there are unknowns that can tank the mine’s value. This scares ordinary investors and

keeps the prices down. But insiders can erret out the good reserves rom the bad ones. I youget into the right company you can make a ortune.

I you are investing in mining stocks (or thinking o doing so), be aware o the trend in goldprices. It has been in an upward climb now or many years. Is this the end o the trend or are we

just part o the way through it?

Dr. Russell “Rusty” McDougal, who used to run our resource trading service and has been ollow-ing this sector or decades, is very positive in his outlook on gold. “Give us ve more years at thepresent pace, no disasters wanted or required,” he says, “and we’ll see gold at $2,400 or above.”

I that happens it would mean a ortune or those who invest wisely in exploration and miningstocks. Recently the cost o such mining stocks has been lagging the price o gold. “That meansthere are extremely attractive right now,” Rusty says. “And this anomaly will not last with cominghigher precious metal prices.”

The gold market has been Rusty’s primary ocus o study or the past 17 years. He ollows goldnot just to grow his wealth but because he thinks it is the best nancial market to “understandhow politics, economics and monetary issues play out in the world.”

“Free markets, honest money and individual liberties are the ofshoots o what gold represents,”he says.

It’s not an accident, he says, that gold and silver have perormed so well in the recent past. “Itdidn’t happen in a vacuum. Rest well assured that no gold bugs were surprised.”

The Factors in the Rise of Precious Metals

1. The U.S. dollar has been debased. It was atally weakened when the U.S. government aban-doned the gold standard, and it has been urther weakened by the reckless governmentspending, which has skyrocketed in the past several years. But other currencies are just as bador worse. The only real sae haven or wealth these days is gold and other precious metals.

2. The whole world isn’t tuned into CNBC’s relentlessly cheery newscasts. There are millions o savers and investors out there buying up precious metals because they understand whatthe American media does not.

3. China has taken its gold reserves rom 600 tons to 1,054 tons over the last six years. Theyhold over $2 trillion in oreign exchange reserves -- our times that o the U.S., Germany,Italy, and France combined.



4. Central banks have been traditional sellers o gold. Now they’re buying. That undamen-tally changes the dynamics o the market.

5. Monetary chaos always leads to a rediscovery o gold. The Chinese, Indians, Russians, Viet-namese, Venezuelans, multiple other countries as well as innumerable individuals have

taken the cue. Gold is, once again, the answer. You had better ignore politics and localdogma and take a more global posture.

And although gold has been up or an average o 17 percent over the last nine years, Rusty says,it has been “anything but a ree market. It was overtly contained and still managed to perormexceptionally well!”

And that’s why he sees gold hitting at least $2,400 gold within ve years “without the inevitablegold escape rom elitist control.”

“Gold is set to perorm with or without major calamities coming our way. You stand to do ex-

ceedingly well with precious metal investments in the coming months and years. You can hun-ker down or doomsday i you want.”

So what does Rusty recommend, other than physical gold? One o his earliest picks, miningcompany Sangold, is still going strong. It’s up 461 percent. And Extorre Gold Mines, a recentpick, is up 416 percent.

With your complimentary subscription to Early to Rise Investor’s Edition, I’ll keep you updatedon which investments would be the most sound additions to your portolio. Look or your rstissue to arrive in your inbox – absolutely ree – in the next ew days.

Protect Wealth From Inflation

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