3 Golden Principles to Grow Your Wealth

We've been talking last few weeks on Trader Tip Tuesday about the role that gold plays in society and particularly, we're heading into a new environment around the world in which governments have been spending and spending and spending to the point that nobody even talks anymore about balancing budgets, or that we spend too much, it's just assumed that we're going to spend. In fact, we not only see that we've never seen by talking about not spending, but we actually now see whole movements in economic thinking that it doesn't even really matter. Just spend whatever you need to spend, and it's no problem. It's crazy, but that's where we are. We've been talking about the role that gold plays, where we might be going and how gold can really save your ass. Last week, we spent time talking about the death spiral that comes from high inflation, that comes from borrowing too much money, that comes from a currency that collapses because nobody trusts it anymore because they know that you can wipe your ass with it. That's how much it's worth. It's literally toilet paper. Toilet paper is actually better, because when you wipe your ass with toilet paper, it's clean. When you wipe your ass with money, you actually get stains on your ass from the money itself.

We talked last week about Aristotle and the four characteristics of good money and if you remember, there were that money is durable, that it lasts over time, it can't be degraded, it can't be destroyed. It is portable, you can move it around, you can put it in your pocket, you can put it in a bag, you can put it on jump drive. It is divisible, you can make it smaller and smaller and and put it back together and make it bigger and bigger. And finally, it is intrinsically valuable. It has value on its own. So we look at paper money, paper money fails in so many regards to this, primarily that it has no intrinsic value. Okay, so we showed all kinds of examples of how, as soon as you move to a fiat currency away from a gold backed currency or an asset backed currency, then all kinds of bad stuff starts to show up and it takes time. It does take time, but governments can get away with it. From manipulating it, they start to learn this, and they start to get in trouble and so they manipulate more and more and as they manipulate more and more confidence drops. Okay, so we talked about that. So today we're gonna talk about the three golden principles to grow your wealth. These three golden principles revolve around, why do you want to use gold. The three golden principles are number one, protection, number two diversification and number three, appreciation. 

Let's talk about protection. Number one, the most important reason to have gold is for protection and this we're talking about, specifically physical gold. So one of the things that we always advise our students is that you want to be prepared for some kind of economic shock, some type of system collapse, some type of financial crash, where literally the things that you depend on every single day are not there. That you're not able to access your funds in a bank, you're not able to go to an ATM, you're not able to wire people money, that all this is gone. What are you going to do? So for protection, if we get into one of these scenarios, gold is king, gold is king. So here's a list of things that we want to have for protection, we have this concept called the safe box and this is just one element of the safe box, but we want to have currency in the safe box. Now gold is an alternative currency, silver is alternative currency, platinum is an alternative currency. Bitcoin is an alternative currency. Other types of coins also are alternative currencies. They will benefit when fiat currencies collapse or depreciate. So when we look at what we want to have in our safe box, we want to have currency to cover 3 to 24 months of expenses. This means if our expenses are $10,000 a month, we want to have 30 to $240,000 in our safe box, and we specifically want to have gold coins and silver coins. Gold Coins are used for larger purchases, could be gold bars, could be jewelry, but physical gold, gold coins are easiest because you can hand them off very easily and everybody knows what they're worth. 

Okay, so you want to have gold coins for large purchases, what are large purchases? Buying a car, buying an airline ticket, buying a generator, buying guns and ammunition, things like this, big things. Then you want to have silver coins on hand, or other types of silver like silver bars, silver jewelry, but again, silver coins are best. You have silver coins, for small purchases, to buy groceries, to buy clothes, to buy gas for your car, this sort of thing. We recommend that you have cold storage for your cryptocurrencies, you have it in a drive of some sort that's portable that you can take with you. We also recommend that you have currency, you have cash, and you have cash in other currencies. So if you live in United States, you should also have some euros on hand, some British pounds, maybe a little bit of Japanese yen, maybe Australian or Canadian dollars. Canadian dollars are a great one in case you can go over the border, but you have those on hand. Ammunition is always valuable, people think of ammunition as being something used to shoot. But you want to understand that ammunition is a phenomenal currency, you can trade ammo, anybody will trade you for ammo, worth a lot and you want to have this in someplace that you can access it quickly. You do not want to have this and safety deposit boxes, you want to have it in a safe, you want to have it buried somewhere you want to have an alternate location and you don't tell anybody ever where it is. Okay, once you have this, then you know that if shit hits the fan, you and your family are going to be okay. 

Now, the one thing I want you to understand is there's always these doom and gloom people. I sound doom and gloom right now, but I'm actually being pragmatic and being smart, we're being prepared for the worst case scenario, we pray, it never happens. We pray the worst case scenario never happens, but we're ready for it. If it does. Now, if it does come and you are prepared, you will be in a position of power, you'll be able to do things that no one else is capable of doing and these things never last. Okay, if we have a financial crash, it will not last. It may last for a few months, maybe a year, but we as humans, we love the way we live our lives. So I could have a farm and I can grow food on my land and I can raise cows and have my own meat. I can have all of this and I have friends that do this, but at the end of the day, if I'm being real honest, like I love having that as a backup plan, but I don't want to be a farmer and I don't want to be a rancher. It's not who I am. It's not what I'm about. You know what I want to do? I want to go to the grocery store and get great food and I want to go out to dinner and I want to have somebody cook for me. I love all of that and guess what, that's not going to change. Everybody wants the same thing. Right away, people are going to stay in the restaurant business, they're going to stay in the grocery business because that's what they like doing. They like making money from it, and people like me are going to pay them. Even in the midst of a crash, everything eventually will return to some type of normal. Don't worry about that. 

Okay, now once we're protected, now we can move to diversification. Diversification, gold is a phenomenal diversifier. In the United States and in Europe, if we go through and we look at people's assets, their assets are almost entirely in paper assets with the exception of their home, that's the only real asset they have. But if you look at their 401k's and their IRAs or their pensions or whatever, they all hold stocks and bonds, that's it, paper assets. I want to introduce you to a phenomenal book. It's called Failsafe Investing: Lifelong Financial Security in 30 Minutes by Harry Browne. It's a very simple book, but it is a powerful book and one of the things that Harry Browne recommends is investing in gold as an asset class. He introduces this concept called a permanent portfolio. It's an investing strategy that's based on economic cycles, such that you always have something in your portfolio that benefits in any economic environment. The four environments are prosperity, recession, inflation and deflation. So, in permanent portfolio, you allocate to all four asset classes. It's very simple, it's 25% to each one, you rebalance once a year. That's it. Okay, so it invests in stocks, stocks benefit in periods of general prosperity and or declining inflation. Invest in gold, gold will profit during high inflation and it also protects a falling currency and other potential problems, why we have the physical. Long term bonds, they profit during periods of declining interest rates, especially during a deflation and they also do reasonably well during prosperity. Go look at what bonds did during COVID, they exploded. Okay, then finally, cash, during a recession, no particular asset class is going to do well, but cash will hold its value. Having money in a money market fund or owning treasury bills, T bills, they'll offer stability to the portfolio when other asset classes are struggling. Cash also protects your purchasing power during deflation. Cash protection and deflation, gold protects you in an inflation. They're working off each other. 

Okay, so real simply, if you look at adding gold to a stock and bond portfolio, you can see here, stocks are the best performing asset class, but the returns are very volatile. They're the highest performer but they have a lot of volatility and you can see bonds, bonds are generally move well, they generally make money, cash or short term bills, they generally make a little bit of money and a gold that can be volatile, gold can go down for periods but can go up a lot. But what I want you didn't notice is look at the gold curve relative to S&Ps. There's times that they're moving complete opposites and when we blend them all together with gold being the key diversifier, we get the equity curve that every trader and every investor is working to get, which is a curve that is an equity curve that moves from the lower left to the upper right, steadily, no drawdowns, it just keeps cranking higher. So the permanent portfolio, even though its net return is lower than stocks, its risk adjusted return is significantly higher. So as a result, if you could make 11% in stocks versus 8%, in permanent portfolio, but their permanent portfolio has a third of the risk. Well, you could add leverage and double the leverage to permanent portfolio, you'd make 16% instead of 11 and you do it on less risk. So this is a key element. Gold is an ultimate diversifier for your portfolio. So we have protection, keep you safe during a crisis, then we have gold as an asset class to diversify your risk. 

Now we can move to the third principle, which is appreciation. Hey, let's go make some money! Let's make some money off of gold, not just protect ourselves. So with appreciation, one of my favorite quotes is if you want to be rich, go where the oil is. This is from Jay Paul Getty and my partner Mark Shea says, in markets, going where the oil is means finding the strongest trends. So this is going to bring us to this concept of strategies versus asset allocation. So in permanent portfolio, as we just talked about, we put 25% in gold all the time and it really helps, but you're in gold all the time. What if you could be in it only when it was doing great and out of it when it was not. This is what strategies do, strategies have a timing element to them, that move you in and move you out, move you in an optimal environments and then move you out when the environment is not congruent. So Ray Dalio, one of the greatest hedge fund managers of all time, he said if you have three uncorrelated investments, you'll reduce your risk by 50%. But if you have 15 uncorrelated strategies, you'll reduce your risk by 80% while improving your return to risk by a factor of five. So I did a Facebook Live earlier in the week about the secrets of elite hedge fund managers and one of the things I talked about in a video is when you go look at elite hedge fund managers, they all run what's called multi strat funds. They have multiple strategies, and they're doing exactly what Ray Dalio was talking about here. They have uncorrelated strategies such that when one is losing, another one is always making and this is how you go look at a hedge fund manager who makes money almost every month, every year. Turns out 12, 15, 20% returns every year for 30 years. That's why he's a billionaire. It's why Ray Dalio is a multi billionaire. If we can have strategies, we'll be in at the best times and out at other times, and the strategies offset each other. 

Here's a good example, if we can have strategies for gold and my partner Mark publishes the portfolio strategy letter. He's been doing it for 33 years and he has gold timing models built into the portfolio strategy letter and this is an example where his gold timing models, got him in and got him out. Got long in 1993, got out in 1996, and he was out as the market fell from 96 to 2001. Got back in and late 2001, was in for 12 years. Got out in late 2012, caught this whole run up. Then when gold sold off from 2012 to 2016, he was out, but 2016 he got back in and he's still in. So gold can be really volatile. You can see in his table on the right, 40% drawdown, 56% drawdown, 46% drawdown, 40% drawdown. But when we're running strategies, rather than asset allocation, we don't deal with these drawdowns. So this 46% drop in the late 90s, well, Mark was out for a big chunk of that. Then when it was up 583% over 125 months, he caught that in this move right here. That is the power this is where you can make big money. 

Get the three principles protection, diversification and appreciation, all of them around gold. Which in our view, gold and other alternative currencies, they must be part of your plan. They have a mandatory role in keeping you safe, keeping you diversified and giving you a chance to make money when these situations, these environments arise. So this is Trader Tip Tuesday, where every Tuesday, I share with you strategies, techniques, insights, like I shared with you today, to help you take your trading and investing to an elite level. Make sure you incorporate what I'm sharing with you today. If you want to go deeper on this, we're having what we call our Gold Rush intensive workshop, it's coming up. I believe it is the best workshop in the world on trading and investing in gold. It covers all three areas that we talked about today. My partner Mark and I teach it. He's been one of the best people I've ever seen on gold for over 30 years, I've got a lot of experience myself and investing and trading gold. We are bringing all kinds of knowledge into this workshop to help you be able to incorporate gold as a dependable asset class. As a dependable strategy for your portfolio uncorrelated. So this is something you want more information on, reach out to us, and we'll get you set up. Until then, I'll see you next Tuesday.