Economics and your Investment Strategy

My other passion – beside Salsa dancing – is Austrian School of Economics.  Yes, I believe in the principles of Free Market Capitalism that would work much better without the intervention of the Big Brother.  I am all aware of the true causes of economic depressions and how they could be avoided (if only central bankers stopped thinking they can control everything).  I learned how fiat currency destroys wealth and brings poverty.  I am also aware of how a fractional reserve banking system allows the central bank to create money out of thin air.  I will write more on the topic of macro economics as I believe it’s important for everyone to know.  For now the question is…

What can we do to protect ourselves from the ravages of our economy and Inflation?

One of my favorite professors of Economics is Krassimir Petrov.  His lectures are fun and he makes it easy for anyone to grasp the knowledge.  And imagine this…he uses logic and common sense approaches!  That’s quite unique for a professor of economics…but that’s why I like him!  When it comes to investments I learned there are two types of assets: financial assets and hard assets.

Do you like to gamble with your future?

Investing in financial assets (stocks, bonds, and other type of securities) is like playing at the Las Vegas casino.  You “play” a few bucks…you win a few hundreds…you think you can win more so you “play” your winnings…you lose them…then you “play” some more and you’re still leaving the casino with a “negative” in your pocket.  Now, take the word “casino” and substitute it with “Wall Street” and never forget that!  Unless you’re one of the big players on Wall Street in the long run you will never win…they will!

Then we have hard assets

Let’s clarify this first.  Buying gold and silver is not an investment!  It is simply a wise move for a smart person to help himself maintain his purchasing power when the government devalues the currency.  Keeping dollars in the bank (any bank) today is like putting your money under the mattress (some think it’s actually worse than that). If you’re not investing your money in hard assets you may do well to convert your dollars to gold and silver if you wish to maintain your current lifestyle.

Real Estate is also a hard asset however it may or may not represent a true investment.  For years people that owned their own homes considered their residences a personal investment.  Sure, it may have been the “cash cow” for those years prior to the economic Bust when real estate inflationary value was out of control.  What most people called “property appreciation” the classic (not modern) economists were calling “a Boom in the making”.  It makes me think of a client of mine, a formerly very successful builder, that was telling me how only few years ago he was worth millions of dollars.  Not anymore! His was simply an “artificial prosperity”.  Artificial prosperity is created fast (usually during an economic boom) and lost as fast (usually during an economic bust).

Investing in Real Estate

First of all, your personal residence is not an investment and that is because is not generating an income for you…unless you own and live in a duplex, triplex, or any other kind of multi-family and you collect rents from your tenants.  A real estate investment could be a house, an apartment complex, or a commercial property that provide a monthly cash flow for you.  I personally prefer the small residential properties because typically they are easier to sell.  After all there are more people buying single family homes than people buying shopping centers.  Another reason is that I found many renters to prefer renting houses versus renting apartments.  Indeed, managing any rental is not a pleasant task especially if you are not a slumlord.  Luckily, for a small percentage (usually 10% of the monthly gross rents) you can let a good property manager handle all that.  Would this be a good reason to invest in cash-flowing residential property?  Maybe, maybe not.  Overall I still think it’s a smart move to diversify your investment portfolio with at least a few rented homes.  A “healthy investment” is the kind that…

  • generates substantial revenues for you during good times and bad times;
  • is made out of real assets that don’t vanish;
  • does not lose its earnings potential with time;
  • maintains its capital value;
  • keeps up with inflation;
  • is made out of assets that satisfy one or more human needs (housing, food, energy);
  • can be passed on to your heirs and generate passive income for them

If you’re looking for “healthy investments” CLICK HERE to contact me.  I never stop scouting for the high return investments in the best areas of the country.   I and my team of competent professionals will help you with the entire process.

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