Today we present another article forthis round in our non-fiction writing contest – PrepperDoc
Survivalists run the risk of malinvestment because of their acute awareness of the risks that their national economy may face. Solomon long ago penned the advice, “Divide your portion to seven or eight, for you do not know what misfortune may come upon the land.” (Ecclesiastes 11:2) Investment professionals call this “diversification” and it can have great benefits for preppers. We know bad things are likely to be in our future, but we have to prepare for the possibility that they are both near AND far into the future.
I occasionally teach informal classes on investments, usually a total of 3-6 hours of education. While I don’t have formal investment or financial training, my chosen profession does not include any “pension” and thus I have the “on-the-job” training of having managed my own retirement “portfolio” and family for 30+ years, and I have a valuable advisor in my octogenarian father-in-law, who has seen even more than I, in his investing history. Disclaimer: The advice that I give here is not individual advice to YOU, it is general advice that may or may not apply: I am not your fiducial private investment advisor!
Generally, if you have DEBT, you have one of the only available guaranteed rates of return—pay off your debts! Especially consumer debts such as credit cards, auto loans, etc., which often have onerous terms and high interest rates, or grievous risks should you fail to make the payments promptly. There is reasoned disagreement on paying off your home mortgage prior to retirement investing, and every situation is different. If your mortgage has a higher interest rate and/or the stock market is high (like right now) you might want to put relatively more toward the mortgage; if your mortgage rate is really low, you might want to invest more heavily in retirement or other funds. Everyone should have an “emergency” fund that will keep you taken care of, for a period of 30 days (minimally) or up to 6 months (optimally). (Likewise, everyone should have an ample store of food / water.) Retirees may wish to keep up to 2 years of funding in a stable “emergency fund” – these are generally kept in low-risk vehicles such as savings accounts, short-term CD’s, or short-term bond funds or money market funds.
I personally have a preference for long term investments to be in mutual funds or ETF’s, rather than in individual stocks of individual companies. My father-in-law prefers the reverse, but he has far more time to study individual companies than I do. Even so, longer term studies seem to show that most of us do better with (passive) index mutual funds or index ETFs, than even experienced “stock pickers.”
Those investment funds/ETFs may be held in a tax-deferred traditional IRA or in a paid-with-your-checkbook ROTH IRA, or even a taxable brokerage fund, or in a mix of the three. The differences are in rates of taxation, as well as vulnerability to judgements. You may need advice from an expert to fine tune your exact mix, but it doesn’t hurt to have some of all, giving you “tax-diversity” and flexibility on withdrawals later. ROTH IRAs can easily be used for education after a few years, for example.
Longer-termed investment areas of interest to prepper types would probably include: domestic large and small cap stock funds; foreign stock funds; precious metals mining stock funds; nearby rental houses; REIT funds (real estate investing “the paper way”); physically-held precious metals (silver, gold, platinum, palladium); homestead land/home; firearms; ammunition & ammunition construction equipment; and “stable value” money market mutual funds. That is a list of TEN different investment areas – even more than Solomon’s admonition to split between “7 or 8”. I didn’t list “bond mutual funds” because these are probably heading for a loss in the next few years, but if interest rates were to rise to normal and remain there, bond funds would become more exciting.
Since none of us have a crystal ball (other than the longer-term view given by the Apostle John & others), a reasonable investment strategy is to pick some percentage breakdown amongst all these different investment avenues, and then split one’s investment money between them according to your percentage choices. (I might add one would want to be ongoingly investing in the The Kingdom of Heaven, through whatever church or other avenue God has led you to.) Most of the stock funds and REIT funds can be obtained (either inside an IRA or outside one, in a “taxable account”) easily through large public companies such as Vanguard or Fidelity, either using their web pages, or even picking up the telephone and dialing their 1-800 number for assistance.
Getting started is the hardest part. You have to pick percentage allocation to each chosen area out of the blue. It wouldn’t be unusual to simply keep them all even (10% in each area), though after a point, more firearms may not be useful (unless you have a license to deal in them), holding precious metals will likely require a substantial safe, and you may not need/want a huge home at this point in your life. After you have all the firearms & house you need, evenly dividing between the remaining categories would be reasonable. Then, simply pick an “index” fund that applies to each area, if at all possible: these will have the lowest costs and as the market has a finite amount of total “return”, you will end up giving the least amount of that total return to advisors & fees, if you use index funds! (I also happen to prefer Lee reloading presses, as they work, and they are inexpensive…)
The real profit come from the rebalancing efforts you’ll then do every year or so. You started with a set percentage allocation to each area. Some areas will prosper more than others. Their percentages will go higher than their set allocation, while others will drift below their set allocation… To rebalance, you simply compare the resulting percentages every year or so, and sell a bit out of whatever has grown, and buy some more in the areas of your losers, to bring their percentages back to your choices. Yes, I know that sounds counter-intuitive, but it mechanically forces you to “buy low, and sell high.” This is Prov 27:23 in action, “Know well the condition of your flocks, and pay attention to your herds….”
As of this writing (early July 2015), here is my own personal “estimate” of whether each area is currently near a peak, or a bottom (I could be a genius or an idiot, and variably so):
Domestic large cap stocks: Near a peak
Domestic small cap stocks: Peak
Foreign stocks: About to plummet
Precious Metals Mining Funds: Cheap
Rental Property: Depends on neighborhood
REIT funds: Probably peaking
Homes: Neighborhood dependent, but generally within reason.
Firearms: Cheaper than in years
Ammunition/Equipment: Cheaper than in years
Money Market Mutual Funds: As usual (usually don’t do much up or down)
Don’t put too much stock in my estimates, however!
Beyond rebalancing percentages invested in each different category, one can apply more advanced strategies (such as a momentum strategy ) to pick more specialized stock funds than the simple index funds, but you may have to stay the course to see your strategy succeed….changing course in a downturn can be a losing proposition. However, simply choosing index funds and well known precious metals, commonly utilized firearms in popular (thus re-sellable) calibers, maintaining a modest home with a productive garden, paying off your debts and rebalancing every year or so – these are strategies that will prosper in the long run.
 E.g., the “Upgrading” momentum-based strategy taught by Sound Mind Investing. Web site: sminow.com
Prizes for this round (ends July 10 2015 ) in our non fiction writing contest include…
- First place winner will receive – A case of Yoder’s Canned Bacon (12 cans, $169.95), a case of Future Essentials Canned Green Coffee Beans (12 cans, $143.30 value), and a case of our Future Essentials Canned Breakfast/Cold Cereal Variety with Milk (12 cans; a can each of Raisin Bran, Rice Krispies, Corn Flakes, Apple O’s, Whole Grain Frosted Wheat’s, Cocoa Rice Krispies, Honey & Nut O’s, Fruity O’s and Frosted Flakes, as well as three (3) Cans of Powdered Milk Substitute (18 oz. each) – (a value of $62.90) all courtesy MRE Depot and a WonderMix Bread Mixer courtesy of FoodPrepper.com a $300 value. Total first place prize value over$674.
- Second Place Winner will receive – A Royal Berkey water filter, courtesy of Directive 21 (a $283 value) and an autographed copy of 31 Days to Survival…
- Third place winner will receive – A gift certificate for $150 off of Hornady Ammo courtesy of LuckyGunner Ammo.