I walked with a good friend this week (he was a financial advisor for 20 years until he sold his business a while back), and I asked him what I should write about this week in my Blog. He immediately said, he gets asked all the time, “where should I put my money in these uncertain times?” Great question and timely. I will address this in my Blog.
But the answer is dependant on many factors. For example, when I chat with clients or prospects, I often say, “you need to divide your money into three timelines:
- Short-term immediate to 5 years
- Mid-term 5 to 15 years
- Long-term 15 years plus
The next big question is, what asset mix should go into each basket? Again, it depends on several factors.
- Where are we in the economic and debt cycles?
- What are the major macro trends driving the financial markets?
- What are the most undervalued and unappreciated assets?
- What are the best solutions to be defensive in our current times?
- Are you looking for income, investment growth, hedging or some speculation?
- What risks are you able to handle? Remember, all assets have risk and possibly counter-party risks.
These are just a few of the essential questions you need to consider before you deploy capital.
Truthfully, building long-term wealth is not easy. Wealth building requires developing a plan, reviewing it often and making changes when necessary. It would be best to have sufficient time (decades), select the right assets (diversify properly) and make wise decisions on when to purchase and sell (all assets classes have cycles). In my wealth course, I cover all the keys things you need to learn to build and protect your wealth over your lifetime. https://fivefoldfinancial.ca/wealth-courses/ On special right now for $297 CA, and as a bonus, once you complete, I will do a free one-hour free consultation to discuss what is important to you.
So let’s briefly discuss the three timeline concept with you and provide some suggestions and guidance. Short-term, immediate to 5 years: Having emergency savings is essential. Cash is king in a crisis or when life happens; having cash for unexpected costs is critical.
- Using a TFSA account is an excellent investment vehicle for Canadians as you can use a wide range of investments (lower risk) and have immediate liquidity.
- I encourage you to build up to three to six months of income.
- Have cash available is critical.
- Having physical Gold or Silver as a hedge and they are both very liquid.
- Learning how to trade various markets (day or swing trade). Trading markets can be very profitable if you are willing to learn how to trade, but also risky.
- Have a small allocation to speculative assets like Bitcoin/Crypto or a wide range of different sectors. Again, these can create spectacular gains, or you can lose a significant part of your money or even 100% of your capital.
- Avoid most bonds, GIC’s as you will have a sizable loss due to inflation-adjusted returns. (often 5 to 10% losses year after year of your capital). Many bonds have the growing risk of defaults, with companies and countries borrowing record debt levels.
Mid-Term 5 years to 15 years: We are now transitioning from savings to investing. Investing is where things become a lot more complicated. Because we are overdue for a sizable correction or even a possible crash, I strongly recommend becoming more defensive for the foreseeable future. Here are some ideas.
- Value stocks with dividends. Use a combination of TFSA (first), then some RRSP (not the main strategy) and use Cash accounts (provides flexibility).
- Be willing to diversify into different markets and sectors. Find non-correlating asset classes to your portfolio mix. This means not having 100% of your wealth in one or two asset classes.
- Physical Gold and Silver as a hedge, as we are in a severe inflationary period due to government and central bank policies. Both metals are unloved and undervalued and a great time to build a position. Think 5 to 10 year hold period. Everything is becoming more expensive, and our currencies continue to lose purchasing power with the governments’ massive deficit spending and endless currency printing by central banks. We are now 13 years since the Great Financial Crisis, and no sign of the growing and unsustainable debt levels stopping. I have warned for over a decade, this will eventually not end well for the majority of people.
- If you have 100K or more of family assets, I can arrange for you to have a top active and discretionary portfolio manager look after a portion of your wealth. Superior to passive funds, which the majority of Canadians have their money in currently. We are in very volatile times and markets. The key to long-term wealth accumulation is not to take big hits to your portfolio. Does anyone remember 2000 and 2008, and what happened to your portfolio?
- Hard assets: We are in a commodity super-cycle. Several key factors drive the demand for many commodities: 1)—lack of investment for years in many sectors has created shortages and the long-time factor in bringing on new supply (often over a decade). There are significant shortages of many commodities. 2). The enormous global need for new infrastructure and the electrification /green agenda. 3). Mismanagement and poor policies by most governments have exasperated the situation.
- Farmland, real estate with positive cash flow, and apartment REITs (must have exceptional management, low debt ratio and proven track record) can be good choices for some investors. Much of Canadian real estate is highly overvalued at the current time, so be very cautious.
- Business ownership. Becoming a business owner is not easy. It requires capital, having multiple skillsets, being very focused and disciplined. There is also a high risk of failure in the first five years. However, if you can learn the ropes, be persistent and find a niche in the market that you can be passionate about, being an entrepreneur can be very rewarding.
- Consider a whole life par insurance contract, Guaranteed Income for Life contract (GMWB), and Segregated Funds.
- Build a basket of commodities that are in high demand with the Green and Infrastructure Global Agenda. (copper, silver, uranium, nickel, lithium, rare earth, steel, iron, etc.) But, remember these assets are often very volatile, and you should consider trading to lock in gains. Learn the skillset.
- Make sure you have proper life insurance, critical illness insurance, possibly disability insurance to offset liabilities, guard income and protect loved ones.
Long-term 15 plus years: Many of the mid-term assets may continue into your long-term wealth strategy.
- Focus on creating or maintaining multiple cash-flowing assets (preferably 5 to 7 is a good goal). The strategy can include real estate, insurance contracts, dividend stocks, trading stratagies, and businesses. Just be very careful to understand the risks of each asset and be willing to sell assets if the timing is right.
- The whole purpose of creating long-term wealth is to build and maintain your desired lifestyle. As we age, most people want to slow down. Retirement is an option, but not for everyone. De-risk your portfolio as you age.
- It would be best if you didn’t take significant hits to your capital on the journey. Remember 2000 and 2008, and yes, cycles do repeat.
- I recommend having an actively managed portfolio over a passive portfolio.
- I see this decade as a volatile period for several factors: several critical cycles are emerging simultaneously, creating instability geopolitically, socially and economically.
- Seek professional help as creating and protecting your wealth is a team sport!
If you need help developing a wealth plan or adjusting your current one, please reach out to me at 778-539-7107 or firstname.lastname@example.org. I provide a free consultation and an easy three-step process if you decide to work with me.
Best regards, Bill
PS For those who missed my interview with JP Laporte, the creator of the Personal Pension Plan for business owners and would like to learn about it (45 minutes); please copy the link a view it at your leisure: https://us02web.zoom.us/rec/play/oKyq0gETj5LE8ahWUoMrX0S0we1_g8qbvLdWrWETSzdNyHsDBWtwZjOt-Yn5adOBaS2atLmpKdCLhA54.5yJhA5fdjgpLFDnK?continueMode=true
Sorry, I had a technical issue, but the video and recording are clear with JP Laporte.