Wealth Preservation and Long-Term Tangible Investments
Successful long-term investments sometimes have more to do with avoiding losses than capturing gains. Many investors are in a "wealth preservation" mode at this time and looking to keep what they have—rather than increasing their net worth. Many investors have started looking at tangible wealth over intangible wealth.
Tangible assets have become popular as a means of diversifying investments into something that exists as a "physical thing," rather than remain in cyberspace and exist as a "virtual thing." Many investors have converted securities, bank accounts, and U.S. dollars held in cold hard cash into hard assets, such as real estate, gold, silver, diamonds, and other tangible assets that are expected to hold their value in the future. It all comes down to what future inhabitants believe is intrinsically valuable and will pay labor and/or capital to procure it. It's as simple as that.
Cold Hard Cash aka "Fiat Currency"
With the discontinuance of the gold standard in 1971, the U.S. dollar became what is known as a “fiat currency.” This is currency that is backed by the “full faith of the U.S. government” and not gold reserves. Admittedly, the United States economically and militarily has continued to be the strongest nation on earth, so the full faith of the U.S. government has been sufficient to sustain the U.S. dollar as the world reserve currency. This meant that oil purchases around the world were done with U.S. dollars and foreign banks held U.S. dollars in reserve at their banks. Approximately, 60% of all U.S. dollars outstanding are electronically or physically located outside the U.S. The justification for Nixon removing the gold standard was that oil was now the liquid gold of the world. Whoever controlled the oil controlled the world economy…and there is some truth to that statement.
An excellent example of how a fiat currency fares against gold, silver, and gems in the long-term is the recent discovery of Chinese bronze Bainlaing coins, circa 221 B.C. in China. Tomb raiders had raided the tomb of gold, silver, and jade; however, 100,000 bronze Bainlaing coins were conspicuously left in the tomb. Another fiat currency bites the dust.
Potential Stock Market Adjustment(s)
Each time the U.S. appears to be on the precipice of a huge stock market adjustment, another country steps in to save the day. For example, the Chinese stopped buying U.S. Treasuries abruptly during the fourth quarter of 2013, so Belgium (yes, Belgium) stepped in and bought the U.S. Treasuries, thus taking up the slack and making the Chinese ploy a non-event.
Japan has appeared to take up the slack caused by the U.S. Federal Reserve Bank's (FED) ending of its Quantitative Easing program by increasing its own quantitative easing program for the Yen. In addition, investors have started pricing in the European Central Bank (ECB) instituting a quantitative easing program of their own, but that eventuality is still far from decided in Europe.
Japan's quantitative easing program may have potentially extended out the timing of a major stock market adjustment in the U.S. Many investors have turned to real estate as a tangible asset that will help maintain all or part of their net worth. There are pros and cons to holding real estate, so let's take a look at some of them in light of other investment vehicles such as precious metals, diamonds and other gems, and other less-likely non-traditional investments.