A Different Perspective on Investing, by D.W.

I’d like to offer my thoughts on wealth preservation, investment and insurance for the modern prepper. In terms of qualifications I’m a Fee-Only Financial Planner and Registered Financial Consultant who owns his own business and services clients with millions of dollars down to just a few thousand dollars. Several of my clients would qualify as preppers and have engaged me on these issues. I’ve been an avid SurvivalBlog reader for several years now and I have been modestly prepping for most of that time. Allow me to begin by stating my presuppositions on the state of the economy and the chances of economic collapse. I probably fall outside the mainstream of the average reader as I don’t necessarily believe the current economic issues our country is having will result in all out collapse. I consider it one of a number of risks that face productive people who wish to store and increase the value of their labor in investments.

If a number of outcomes are possible, how does one chart a course to not only maintain wealth but to actually grow it? Without getting into the most technical trappings of good asset allocation let me just say that the key to dealing with risk is diversifying. In a traditional investment portfolio such as an IRA or 401(k) I would recommend a mix of assets to deal with volatility. The asset classes I recommend can be roughly broken down to stocks, bonds, commodities and real estate. Different mixes of these four asset classes can produce portfolios all along the volatility spectrum from high volatility/high return to low volatility/low return.
If your life and everything you own is a portfolio that you have to allocate I would recommend keeping your intangible wealth such as IRAs and 401(k)s in a mix of stocks, bonds and commodities index funds managed by a qualified professional. Consider it diversification for the possibility that the world does not end. Personally I consider that plan A but depending on your perspective feel free to consider it plan B. It is the wealth you possess in tangible, non-traditional forms that I want to encourage you to allocate in a similar way to a professionally managed portfolio.

Diversification in this area of your wealth can save you from the same headache and heartache that those who loaded up on tech stocks in 1999 or real estate in 2006 had to deal with. Diversification can allow you to
protect wealth as well as grow it. Here is a general framework for allocating the assets of your life from a pepper’s perspective.

Stock Equivalents – In the traditional investment world common stock represents a tiny slice of a business, an enterprise focused solely and exclusively on creating and increasing the value of goods and services. It is by definition intangible as you can’t call in a “chunk” of Microsoft or Wal-Mart. I love the concept and function of the stock market as it allows anybody to be a participant in the miracle of the American economy. That being said, I’m not so naive to believe that market is completely “free” or clean as the wind driven snow and it is of course intangible. If the SHTF a share of Wal-Mart stock will be worth $0.

Preppers have a chance to participate in an entirely different stock market that exists to create and expand value of goods and services and individual preppers can be the sole owners of 100% of the shares of any given business if they do just one thing… start it themselves. Creating a side business that focuses on meeting the most basic needs of people is a fantastic way to create, grow and maintain wealth for every prepper. People will always need food, clothing, heat, security, clean water and energy solutions. They need these things today and they will need them if the economy collapse’s. I think of Pat Frank’s novel Alas, Babylon wherein, after a 1950s-era nuclear war, the main character transacts business with a bee keeper who before the war was considered lower middle class and bees were a sideline. Now in the aftermath of a war and societal collapse he was considered fabulously wealthy with an army of, essentially, slave labor producing continual additional wealth for him.

Obviously the SHTF key to this wealth growth and maintenance strategy is to focus on “basic needs” businesses. Start a farm stands, learn to weave, buy a loom, start a hobby farm, cut firewood, learn how to butcher animals or start a hobby blacksmith shop. You’ll need time to learn to efficiently hone your business practices and develop your markets. Even if you only do a very small amount of business you can acquire the necessary hardware and get your name out in the community. Each customer becomes another layer of protection from economic downturns. I tell people all the time that I’d rather have 100 clients who pay me $1,000 a piece then one boss who pays me $100,000 a year. Job security is a myth if your boss is nuts or doesn’t mesh with you personally or is just bad at his job and has to fire someone because he’s driving the business into the ground (boss’ will never fire themselves in these circumstances).

Your business represents the exact same asset class as Wal-Mart or Microsoft stock represents in your investment portfolio. Business will always exist in some form or another no matter how bad things get. You will position yourself to create and maintain real wealth in a SHTF scenario if you have a business that functions and creates essential value for people before things get lively.

Commodities Equivalents– In an investment portfolio, commodities play the role of black sheep. Because they zig when everything else zags they tend to reduce average risk while still historically providing relative high returns. They also provide some protection from inflation since the numbers you read on your monthly account statement represent physical goods held somewhere, even if it’s still in the ground. They are in reality still intangible since most people are entirely unlikely to take delivery of 100 barrels of oil or a thousand head of cattle. It’s simple to translate these benefits to tangible assets with in the peppers’ asset allocation.

In all actuality, commodities are one of the most popular and most discussed investments in the prepper community already. If you’ve got a years’ supply of food, gold and silver and guns and ammo you’ve already invested in commodities. Congratulations part of your asset allocation is in place. These things represent physical items that will maintain or grow in value in an inflationary setting. However, I believe that within this asset class you’ve got items that should qualify as insurance and some that should really qualify more as growth investments. For example your food supply is insurance against a disruption in food distribution, not an investment. Think about it this way, under what circumstances would you sell your food preps for profit? I’m guessing you wouldn’t. It’s an essential cornerstone of quality prepping and it should be a priority before you invest for growth. So where do you go when your food preps are essentially complete and you wish to build commodity based, tangible wealth to compliment the other wealth building asset classes such as your home business?

The universal answer for this in prepper communities seems to be physically held gold and silver coins. Obviously enormous amounts of information have been disseminated on this and other internet sites about precious metals. They are tangible, conveniently small and universally recognized. They obviously have a place in wealth preservation. However, they are also easily stolen or lost due to their small size and they can be forged. The integrity of the supply affects you even if your gold and silver is pure since it casts doubts on the totality of the supply. How will the buyer know that your gold and silver is pure? If you were a government entity that wanted to discourage people from owning gold would it not be in your best interest to flood the market with counterfeit gold and silver or at the very least turn a blind eye? The risks that come with owning gold and silver are more diverse than just spot price volatility. That doesn’t mean you shouldn’t own it but it does mean you should diversify by owning other commodity investments.

One of the best tangible investments that preppers can purchase is livestock. The synergy (sorry to sound like a business guy but that’s who I am) that comes with this purchase can be perfect when applied to a farm as a home business. You end up with a money making enterprise (I hear the snickers from the farmers out there) that is filled with tangible commodities that reproduce, create food and other valuable bi-products and meet your need for food production and wealth preservation. Even if you start with minor purchases like chickens or rabbits you are further ahead in this area then 95% of the people in the USA.

Another high quality investment which I consider almost guaranteed to grow faster than inflation is collecting surplus firearms. Surplus firearms are generally military firearms from the last 100 years or so. They come in many different grades of quality from the highest end antique investments to beat up, almost non-functional examples. You can own firearms from all over the world and many historic time periods. The reason why they can be great investments is simple supply and demand. Take for example the Mosin Nagant. This is generally a Russian bolt action rifle that can be obtained for around $100 in decent shape, typically 60 or 70 years old. Even though many millions of these rifles have been produced in the past they are no longer produced for military use. The supply is capped. Now I know these things are basically a dime a dozen right now but how many of them are being modified, broken, lost to neglect and house fires? The demand can only grow as population grows. The rifles, though ugly, tend to be fully functional. You have a commodity that is useful, historic and tangible with a capped or even slightly declining supply. I’ll take that as an investment opportunity any day.

I’ve been following the price of Mosin Nagants for several years now. Prices are obviously relative to the quality of the piece being sold but generally I’ve found prices to have risen in my area from around $90 to about $120 for decent examples of the rifle in roughly the last three years. That is a return of around 10% a year. That’s growth I think you can count on in this market for many years to come. Buy an M1 Garand and M1 Carbine, an Enfield, a Mosin, a SKS and any number of other rifles. Enjoy them, store them well. In a SHTF scenario you’ll have a functioning tool for your security but if things don’t get lively you’ll still have a great investment that is nearly certain to make you money, assuming you can bring yourself to sell them someday. On second thought you may want to buy multiples of your favorite rifles to pass down to the kids.

As a qualifier to the above, let me say I’d encourage people to purchase their functional everyday firearms first. Get them and their ammo needs squared away first before building your surplus firearms collection. Also, don’t forget ammo for your surplus collection and various sundries like clips, slings and bayonets.

People make money in markets based on what they know. Before you buy surplus rifles educate yourself. Even the most beautiful rifle can be a poor investment if you pay too much for it. This simple truth argues against buying online if another opportunity is available. If you can’t handle it and stare at it and ask questions about it you’re at the mercy of the seller.

Real Estate- Within a diversified investment portfolio real estate can take a number of forms, everything from Real Estate Investment Trusts which function similarly to stocks to buying rental properties and acting as a land lord. Real Estate can be a great investment for a number of reasons but one of my favorites is the simple fact that most real estate is not priced minute to minute like the stock market. You really only know the value of your Real Estate the day you buy it and sell it. Because of this and the fact that it’s a real process to sell Real Estate most people hold it for the long term.

Within your tangible investment portfolio your home probably makes up the bulk of your real estate and that is fine. If you’ve paid a good price for it and you are not deeply upside down on your mortgage you have probably fulfilled this portion of your tangible portfolio. The question may be not whether you own Real Estate but do you own the best possible investment quality Real Estate for your situation. Investment guru’s like Jim Rodgers and experts like our own Jim Rawles have encouraged people to consider investing in productive farm land. I believe this to be an excellent choice for those looking for their first Real Estate investment or for those looking to trade out a house in the suburbs for something more rural. Specifically I like this choice within the frame work of your own home business. Running a small business on a piece of property you own is a great way to increase the overall value of the parcel. For instance, if you fence the land for a few head of cattle you have all three of the investments mention so far in this article; the farm as a home business, the cattle as a commodity and the land as real estate. Even if you don’t run a farm, for many people other businesses are available such as making maple syrup or leasing for hunting purposes.  Showing that you can run a money making venture on a piece of property significantly increases its value when it comes time to sell.

For those of you unable to come up with the money to buy productive farmland, consider unproductive land. You may be able to get a poorly located plot or hilly countryside on the cheap and then improve it as your time and finances allow. This is another great way to get into the game with a little sweat equity and what I’ve found is that many of the most interesting pieces of property out there are ugly ducklings that someone invested their imagination and perspiration into and now are very compelling investments. If I could impart just one bit of wisdom towards this suggestion it would be this; don’t pay too much for the land.

Bond Equivalents- Traditionally bonds have formed the “conservative” corner of most retiree’s investment portfolios for decades. Today treasuries and to a lesser extent corporate bonds have had their prices pushed so high by the Federal Reserve’s actions that they have lost much of their “conservative” reputation in the secular world, and amongst the true believers of the prepper community they are anathema. A bond is really just a loan you give out to someone you reasonably trust to pay you back with the agreed upon interest included. You aren’t guaranteed anything and the higher the anticipated risk the borrower won’t be able to pay you back the higher the required interest rate.

In the world of the prepper I like to think of bond equivalents as good will deposited and built up amongst people you have everyday relationships with.  A lite example would be your neighbor who feels like they owe you for loaning them your push mower when theirs broke down. Now admittedly this is not a tangible investment but in the world of relationships I consider it the second most compelling currency, just behind love (with the right heart attitude they are one in the same). In reality that good will translates often to tangible benefits.

The relationships you build before a SHTF event may be the best investment you make towards not just surviving but thriving in difficult times. Those relationships will thrive and build good will most often when you are seeking to be a blessing to others. Not specifically with the idea that you are going to “cash in” on these acts of kindness but when you aren’t going to. That genuine care for others will be reflected back on you in the most difficult times of life. Often concepts like OPSEC and population density are discussed in settings like this and for good reason. But they are not to be interpreted as isolation from relationships. Our lives are enriched by relationships so get to know your neighbors. Be a blessing to them and build yourself into their lives. The last thing you want is to be in a situation where you are just meeting your neighbors for the first time when things are very bad. You will be considered an outsider in their circle of trust with little chance of breaking through that for your benefit or theirs. If you build up good will now, similarly to loaning money to a government or corporation, you will see the goodwill flow back to you with interest during times of trouble.

Until that time comes you’ll find enriching relationships with people who may well buy the products of your home business, sell you their property and feed and water your cattle while you vacation.
Conclusion- If you believe deeply in one particular outcome and you bet your life savings, all of your possessions and your labor on it, in investing terms, you are aggressive. If you’re right you win big but if you’re wrong you could be in trouble.  If you invest in a number of asset classes that all historically go up but do so at different speeds and under different circumstances you are considered diversified. Diversification means you win no matter the ending circumstance.

If a prepper commits to building these four general categories of tangible investments I’m confident that they will not only insure themselves against high inflation, economic tumult and time periods of social disorder but also find their wealth increasing should things stay on a level playing field.

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