Preps or Investing?

Our longtime invisible friend Rourke wrote a post that got me onto this topic. Taking a topic somebody else came up with and giving my spin on it is a pretty good way to have a hitting from the tee kind of blogger day. Anyway this topic comes up all the time.

In some circles you can't be a real survivalist unless you have cashed our every investment you have to buy a bunch of buckets full of wheat and extra pants. Clearly every dollar you have will just burn up in a hyperinflationary disaster so the only reasonable thing to do is to get it all out right now, fees be damned and turn it into good tangible's like buckets full of wheat and lots of extra pants.

If you haven't picked it up I am really not a fan of this strategy. There are so many reasons for this. First if you can't see a reasonable (heck probably likely) chance that eventually you may get old and not be able to work consider the possibility that you are a fool. We could debate investment strategies (and will get there later) but fundamentally you need to be saving for your future. Buckets of wheat will not put gas in your car or pay property taxes in 40 years when you can't work.

The thing about experts is that they tend to be a bit fixated on whatever they are an expert in. This makes sense as people don't tend to get really good or attain significant status in areas they are ambivalent about. The amount of time a championship marathoner or powerlifter thinks is reasonable to spend exercising probably differs from most people. A guy who writes for Car and Driver probably puts more of his money into vehicles than most. An uuber gunnie might think a super custom pistol that costs 2k and a tricked out uuber AR that costs 3k and wears another 3k in accessories are totally reasonable. The point I am getting at is that as a sort of jack of all trades (vs just a gunnie or whatever) we need to look at the big picture. Looking at the big picture means we cannot always shoot the same guns as a guy who just does 3 gun tourneys or whatever. It should be pretty obvious that letting the guy from Car and Driver choose your carry piece is about as smart as letting some preparedness guru choose your investing strategy or the champion marathoner pick your next family vehicle.

Maybe more to the point a definite this or that mentality comes up here which I think is ridiculous. There are almost infinite ways you could spend your money so it certainly does not just come down to preps or investing. It is better to look at the big picture. You could invest $500 a month or have a boat with a payment. You could spend $300 a month on preps or have the big cable package and go out to eat a few times a month. The options are endless which is why this whole argument is kind of foolish to me.

Note that I am talking about taking money that was allocated toward longterm savings (in whatever form) and putting it into food storage or whatever kind of survivalist stuff. Folks who decide to go all contrarian/ hard money are a different sort of discussion. They may be right or wrong but this makes much more sense as they are still saving for the future but in a different way. I know some folks who are seriously contrarian in their investment plans. They keep liquid savings in PM's and put the rest of their money into various things like specialized equipment for businesses or real estate or small businesses that earn money. It is worth noting that lots of "contrarian's" mess up on the part where the point of getting something is that it makes you money. A NIB .44 magnum or gold coin tucked away in a safe does not get you interest or pay a profit. A lot that you rent out to somebody or a share of a local business can make a profit.

However tempting it is to raid your investments to get a jump start on preps I think it is dangerously short sighted. The world MAY end but assuming you do not take an untimely dirt nap you WILL get old. I cringe every time some survivalist blogger/ author/ expert recommends this approach.Taking a couple grand from your liquid savings to buy some basic stuff is not a terrible idea but cashing everything you have saved in your entire life out to buy some stuff you may never need is just not a smart thing to do. A far preferable alternative option is to leave your retirement money alone, cut some stuff you don't need anyway from your budget/lifestyle and use that money towards your preparedness goals. It isn't as fast or easy but you end up in a much better place. Personally I look at the two as entirely different streams of money for different purposes. My retirement account is for if things go just fine and our preps and stores are for if they don't.

Anyway those are my thoughts on that. I am interested in hearing yours.

Worth Reading- 9 Things To Consider When Looking For Your Survival House

I don't get to some blogs as often as I should and that is definitely the case with Food Storage and Survival formerly known as Adventures in Self Reliance. I saw this interesting post

Nine Things to Consider When Looking For Your Survival House

The only things I would change are that "#6 Animal Regulations" might be better stated simply as "Regulations." Can you build a shed or put up a 6" fence, what are the gun laws like,  can you have an RV or motor home in the yard, etc all are things to consider.
I would add something to the effect of "Comfortably within your budget." It doesn't matter if you buy the sweetest survivalist bunker Idaho has ever seen on 200 beautiful acres with spring fed water, 3 ponds, 4 forms of alternative power, all the outbuildings that you need and walls that will stop sustained fire from a .50 BMG if you get foreclosed on as soon as you hit a financial bump in the road! Also remember that there is a distinct possibility the world will not end so you need to be saving and investing which are hard to do if you have to scrape to make the mortgage every month.

Pretty conventional financial advice is that housing should not take up more than about 1/3rd of your take home pay. Dave Ramsey says payments on a 15 year mortgage should not be more than 1/4 of your take home which is pretty conservative. Something in this range is probably where you need to be. I see this as significant for 2 reasons. The first is that it lets you save and invest and do other things. You don't want to be "house poor." The second is that you have a better chance of being able to circle the financial wagons and make the mortgage if things get bad (which they will for just about everyone over a couple decades) than if you are reaching and scraping to make it work when things are going fine.

Also Jim Rawlses acronym WALLS: water, access, location, light, security, though specifically made with rural "retreats" in mind is still worth revisiting. You simply have got to have reliable access to water without grid power to have any sort of viable doomstead. This really should be from multiple sources like a small solar pump and a nearby spring or whatever. Not just one source, especially if it relies on something complex like an electric pump. Unless you are going out into the sticks access is not an issue. Light is a consideration to the degree that you plan to garden. Location is pretty important but touched on in the article.

Security is really the last consideration because unless you are completely hosed (a condo in downtown LA) it is the easiest to fix. An 8' high cement wall, a pallet of surplus concertina wire stashed in the shed, a couple RPK's with 3 drums a piece, some quality night vision, a dozen friends and some fairly basic planning can make the worst security situation into a pretty hard target. On the other hand if water is 500 feet down you are pretty much hosed.

More Foreclosures Coming To Your Neighborhood

This morning started out with a ZONK and then went to a cup of coffee and the news. A nice suprise on the last day of a busy week. So now I am at home drinking some coffee and watching the news. I suppose other than to note that I am having a nice morning none of that really matters. I saw "Americans brace for next foreclosure wave" on yahoo when I went to check my email. (As a reminder my email is theotherryan@yahoo.com.) Needless to say I have some thoughts.

I don't believe for a second that we are done with the sub prime adjustable rate mortgages. From watching the money shows it seems like 3 and 5 years were the common periods before these mortgages adjusted.  I suspect rate adjustments are not a huge issue now as the rates are (some would say artificially) being kept quite low. While I can't say when exactly, some day not too far from now that will change. Since home values are down and folks didn't have any equity to start with they may not be able to adjust into much more desirable fixed rate loans.

The article notes that a lot more of these foreclosures are normal folks with fixed rate mortgages and that unemployment/ underemployment based on the bad economy is to blame. Probably somewhat true. This is sad and is a reminder that folks should be pretty cautious when it comes to how much home they buy. In the 15, 20 or 30 year life of a loan odds are some bad stuff will happen, even in the most boring and well planned life.

We will not have a chance to get beyond this mess until the vast majority of the bad home loans are foreclosed on and those homes are then sold at their current values to people who can actually afford them. This also includes the massive "shadow inventory" of empty homes held by banks. We are not done with this mess.

So what does this mean? For the country it means that we are waiting for the other shoe to drop. For individuals I think that if you are in a place to purchase a reasonable home with a fixed rate mortgage it is probably a pretty decent time. I don't think that timing the exact bottom is a good strategy and right now interest rates are very low. As to investments I would say that folks who can pay CASH are in a place to get some great deals. Just like in past hard times folks who have cash can pick up deals that really pay off down the road. Note that I said PAY CASH. If you haven't figured it out the whole debt based real estate rental get rich scheme is a seriously flawed.

Also I like coffee and quiet mornings. That is all.

Retirement Fun for Boomers and Beyond

I should note that I do not have a crystal ball or a product to sell which will magically fix all the problems I am about to discuss. I am also not an accountant or a financial advisor or anything like that so nothing I say should be seen in that light. By all means read what I say and think about it. If you decide it might have some merit then consider it in your plans. However don't just mindlessly put a lot of money into this or that because I (or anyone else) talk about it if you do that you are a fool and deserve all the bad things that could happen. Be an adult and make your own decisions because you will have to live with them.

With the slew of municipalities being broke and having insolvent retirement funds, corporations dumping pensions whenever they get any excuse and a whole bunch of states broke I would be concerned if a pension was going to fund my retirement. Heck even the federal government isn't doing so great. Consider what would happen if you pension was radically reduced or even defaulted entirely.

Also if you haven't noticed the USA has a real problem with welfare social security and medicare. Like the level of problem Charlie Sheen has with vodka and cocaine. Social security was started by commie FDR with benefits at 65 when people on average died at 62. Also there were lots of workers to pay for it. The numbers don't work and are rapidly getting worse. Too many people are retiring and not enough are working to pay for them.

I imagine a lot of small things will be done to try and bend the exponential curve of welfare entitlement costs.The are to collect full benefits will likely go up, well off people will be charged on more of their income (I think it's 100k right now), and some sort of a means test will likely appear. I believe all of this will only succeed in kicking the can down the road a few years.

Also more significantly generations X and Y realize we are never going to collect meaningfull social security. As boomer politicians screw us with higher rates of theft contribution we will get pissed. Pretty quickly we will get into an age demographic that votes at a far higher percentage and are a significant force there is going to be a reconning. I am not sure how we will screw you the boomers but I bet we will. Best case is that they are going to be paid in inflated dollars. On a more gloomy side it could be significantly inflated dollars. Worst case for them the welfare social security checks will stop entirely.

My point here is that you should plan for retirement without counting on a pension OR social security. If you can collect either of them then go for it. However personally I would want to be able to support myself without either and just have them as icing on the cake.

In an even darker scenario the dollar and subsequently paper investments denominated in the dollar could take a nasty hit. Maybe it could be a slow slide or a fast crash, I don't know. In any case the have money in investments and live off interest/ dividends plan would fail in this scenario. To be honest this is relatively unlikely (slow slide to a currency among many versus world reserve currency and a moderate loss in purchasing power is more likely) but it would be a bad one. Most retirees would be devastated. The truly rich would generally be fine (somehow they always are) but middle and upper middle class folks would mostly be destroyed.

What can be done for those who are worried about this relatively unlikely (the extreme version anyway) scenario? The first thing that comes to mind is to have your basic financial house in order. For those close to retirement age having very minimal or no consumer debt and having your primary residence paid off is so huge. I watch a lot of those financial shows and the amount of people who are trying to retire with car loans and very little equity in their home (let alone having it paid off) baffles me. If you are debt free and retire then something happens so you face a drop in income at least this way you can shred your expenses. It would suck but as long as you can pay property taxes, fuel and food you will be OK if not happy. However if your pension fund fails/ the stock market and subsequently your investments collapse and you have all sort of stupid consumer debt and a high mortgage payment it will get ugly fast.

My next thought also flows well with what is likely reality for most boomers. The reality is that many of them saved like they have a cushy defined benefits retirement plan when in fact they have a 401k. Too many of them continued to upsize their home and used home equity like an ATM instead of paying off their home. Fundamentally a lot of people are approaching retirement age and just can't afford to retire, at least in the way the Greatest Generation did. Some will be able to retire and live modestly (versus lots of travel and recreation) while others will need to keep working in some capacity or another.

The advantage is that earned income (vs from dividend's, stocks, interest, etc) is pretty flexible. You can, at least in theory, renegotiate the deal for future services to reflect a changing economic situation. That could mean getting paid to reflect the real value of currency, in a stable currency, PM or barter. Hard to do that with your pension or retirement account. If something this ugly happened a lot of people would be headed back to the workforce in a seriously damaged economy. The way to get ahead of the game would be by working in some capacity already. Maybe you could work part time, consult or just have a couple clients. Even a modest income could (in addition to making todays retirement economics more comfortable) be the difference between making it and not.

Where you choose to put your money is important also. I am not against precious metals for an alternate currency/ store of value but have concerns about them for retirement. The reason is that they do not benefit from interest, dividends, etc. Every silver dollar or gold eagle you spend is coming strait out of your principle.

The reason that truly rich (maybe wealthy is a better word) people do not get wiped out is that they own businesses and real estate that produce income for them. If currency values change radically a solid business will continue to earn some money. People will continue to rent apartments, homes and commercial space.

Things that produce income are good things to buy. A lot of the downsides of real estate (and to a lesser degree businesses) are minimized if you pay cash. I would rather have some money in the bank and the market and a modest rental house or twelve in decent areas earning me income than a bunch of money in the market.

I don't know what is going to happen so I hesitate to suggest putting all your eggs in any basket. If your finances are in order, you earn a bit of income and have at least some of your money in tangible things that produce income odds are you can weather whatever comes.

Thoughts?

Talking About Money With Family

I have had some success talking about money with family. I talk about money with family members who have had success and made choices that I desire to emulate. People who have paid off houses at accelerated rates or had success with real estate or been able to retire comfortably or whatever. Typically these folks are older though not always. Obviously they must be trusted or you wouldn't get at all specific on things. Of course there are many family members with whom I would never talk money. Maybe it would lead to awkwardness or disagreement or envy or whatever. Just not something that I would do.

I had a great conversation with my Grandmother awhile back. It was just a rambling conversation that ended up on the topic of money stuff. We end up talking about this stuff because in addition to doing well money wise we are pretty like minded in conservative financial stuff. She had some real good advice and also validated a lot of what we are doing.

Getting advice and having discussions with people you trust who have done well is just good sense.

6 Extreme Ways To Go Frugal

Number 1 is to get rid of your car. Read the rest here.

Read This

FerFal wrote something awhile back that says a thought of mine better than I could.

One thing I do to keep things strait is to kinda mentally divide investment and preparation type stuff. Investments are something I do with my money to put it to work making more money (value). If I get enough of my money working I can sit back and do what I like. Preparations are a form of insurance to me. A thing I do to try and keep Wifey and I alive if things get crazy.