A financial perspective for this period in history
The world’s worst way to hold on to money today is cash. This is not financial advice but a financial perspective. Make of it what you wish. From the events of 2020, cash has been devalued significantly to help prevent a global economic fallout unlike anything in the past. The new problem is that the devaluation will continue. And the rich will get richer while everybody else gets run over. To avoid getting run over, you have to play like the rich.
If you listen to rich people in the investment world who know what they are doing, they are getting out of cash positions. The smart ones are heavily hedging against cash. This is for one reason. In plain English, what your cash will be able to buy is about to become lesser and lesser.
Some call it the redistribution of wealth. But many of them don’t know that it is a distribution of poverty. They are trying to pump money into certain areas in the hope to make up for the financial gap that was consciously created. But the real form of money is not cash but value. But the temporary answer that makes everybody happy is cash. Nobody is paying attention to the real answer — productivity growth.
The question is never about how to make people afford a certain standard of life. If you keep asking that wrong question, you will keep getting the wrong answer. The real question is how to create and supercharge productivity growth. And you don’t try to force productivity growth on people by spending money on projects based on guesswork that make you feel good. Instead, you look at where productivity growth is happening at a rapid pace. And you ask, “how can we aid this rapid growth to make it even faster?”
You cannot use money to create productivity. It is productivity that creates real money. However, you can use money to enhance productivity.
Cash Will Continue to Get Devalued
The future is not so bright for cash. This is why you want to hold as little as possible in cash. Don’t make your cash stagnant. Asides from what you have to spend on a day-to-day basis and a bit of reserve for urgent needs, it is unwise to hold on to a significant amount of cash.
You might say, “well, that has been happening since 1971”. And that is true. But now, the pace at which it is happening will be more evident. In countries with serious debt problems, the price of goods and services has started jumping. Meaning that what you bought for $50 last week is now $60.
The funny part of this is that people are still borrowing cash (from banks) for free or next to free. And that cash is basically being used to fund lifestyle and livelihood (as opposed to productivity growth). And one way or another, the bulk of the cash finds itself in the stock market.
As the chatter about the state of the world economy continues, the answer policymakers will keep coming to will be the devaluation of cash. And that only means that real money will find another place to hide.
The money seems to be flowing into real estate at the moment. And it will likely continue to. But there is also the risk that this might be the top of the market.
Hedging Cash with Stocks
Stocks are a good way to hedge cash. But that is already common. And stocks have their own risks. If you don’t know how to invest in stocks, you will lose money.
This is not because the stock market is bad. Rather, it is because you have no strategy. There are people who invest in the stock market so that they can make losses. Then, they take those losses and use them as a tax deduction.
Stocks are a good hedge as long as you know what you are doing. Just because you want to run from cash doesn’t mean you should run into fire.
The Best Investment
Sorry to disappoint you, but it is not bitcoin. Get my thoughts on bitcoin in my new book.
The best investment you can make with cash is something you can charge money for. This is about creating something you can sell. This is your best bet. This is how you print money for yourself. With that, you have your destiny in your hands.
If you don’t have enough money for something, you can just get up and go sell more of what you produce. For rich people, this would mean private equity. Personally, I love and prefer private equity to all other kinds of assets because of the control to steer things in the right direction when they are going off. In public equity, you can only watch and hope that someone somewhere will do what is necessary. And oftentimes, that doesn’t happen.
Therefore the best investment is an asset that you have control over its ability to generate money. This means that if the asset is clogged somehow and it stops generating money, you can fix it or get it fixed.
Debt Is Money
Strange but true. But you don’t want to have bad debt, you want to have good debt. Good debt is debt that pays itself and also yields extra cash flow. Most people think life will be hard for those who have debt with the way the world is going. But the game is reversed.
Life will be annoying and disappointing for people who have cash. As long as people who have debt don’t also carry a lump of cash, they won’t have problems. There are 2 simple rules for playing the debt game:
1. Don’t miss any payment
2. Don’t store up huge cash somewhere
Why the second rule? This is because that huge cash will be found and your debt will be used as leverage against you to take your cash from you. So, you cannot play the debt game and the cash game at the same time. You pick one and make it stick. If you are going with the debt game, the cash you have must always be insignificant to the debt. You just must not miss any payments.
If you want to play the cash game, then your money must not significantly be in currency cash. Yes, you may choose to stay liquid but don’t keep huge cash in some bank account or any physical place. Just my perspective.
Conclusion
The richer you are, the less cash you want to have. In my opinion, the bulk of the money should be illiquid. And only the necessary should stay in cash. These are uncertain times and the next few years will be very challenging for the financial novice.
But for those of us who know where we stand and what we ought to do, it will be an opportunity like no other to create massive wealth.
If you are a policymaker, stop thinking of how to redistribute wealth by redistributing money. Instead, start looking for productivity growth that can be scaled with policy.
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