Welcome Reader,
We’ll start off this letter with some straightforward questions.
How much money do you have in your bank account? This includes both savings and chequing accounts.
How much money do you have in assets (stocks, real estate, businesses, crypto etc)? Are these assets appreciating at-least 10% a year? Do they give you cashflow?
How many liabilities do you have (debt, credit cards, student loans, mortgage etc)?
Calculate your net-worth (money + assets - liabilities). Compare it with the chart below (click on tweet to see full picture).
The median net-worth of people aged 18-29 is less than $8,000. After age 30, the median value jumps to ~$35,000.
The Point?
If you are 18-30, your net-worth is going to become worthless in the coming years. The gap between you and those over 30 will widen (as it all-ready has if you haven’t noticed).
To be clear, it is not necessarily the age that affects your net-worth. It is your income and asset appreciation. Older people have been in the work-force longer than you hence their net-worth is higher BUT that doesn’t necessarily mean they will see their net-worth increase with time.
The purpose of this letter is to inform you of the increasing wealth inequality gap and ways you can mitigate around it.
For starters, complaining about people being wealthy is a nonsensical thing to do. You are just showing your lack of business acumen and financial illiteracy.
With that being said, let’s get to the crux of the issue.
Someone is taking your money while you sleep. You probably have no idea who it is and may not even notice the loss of cash.
Who is taking your money?
Monetary policies put in place by the central banks and government.
How?
Through a printing press that prints unlimited amounts of dollars at will.
Why?
Government’s lack of ability to budget and fraudulent economic policies that hurt the masses while enriching those who make the policies (See-Nancy Pelosi Insider Trading LINK)
Solution?
Two things.
A) Increase income.
B) Decrease exposure to fiat currency.
Point A is tricky because it depends on a persons skills and resources. BUT it is very important. You have to free your income from state dependence. Make your income streams recession proof and pandemic proof.
Your employer does not care about you and will replace you within a week if you die. Learn new skills if you have to but find a way to scale your income.
Point B is a solution that you can implement right away. If you have been following my twitter long enough, you know how important I believe it is to transfer your fiat currency (CAD, USD etc) into an asset. Cash is no longer an asset and it never has been.
Inflation is currently 5.4% on paper (LINK). In reality, it’s much higher. If your cash pile is not increasing by at-least 5% *after taxes*, your money is slowly evaporating.
Protection?
Assets are your friend. Stocks, Real Estate, REITs, Bitcoin, stable businesses or anything else that you can find.
Ask yourself why the wealth inequality gap has increased so much. How do wealthy people derive their income?
Hint: It’s not through income from a job.
They own assets. Mark Zuckerberg has a $1 annual salary. His net-worth is over $100B. This also hints at the fact that increasing income-tax will not affect anyone that has real wealth. In fact, it will harm those trying to break through the middle class. We’ll talk about that in a follow up letter.
But anyways, going back to Point B. You need to convert a majority of your cash into an asset. Keep enough cash in your bank account for expenses and emergency use. The rest should be working hard to fight inflation and raising your net-worth.
What Assets?
A one size fit’s all example does not apply for assets. My advice to an 80 year old would be very different to a 20 year old. This is simply risk analysis, however, the underlying principles are the same.
Low Risk: Indexes, ETFs, REITS, Real Estate, FAANG etc.
A dummy proof way of building wealth is just compounding into the SPY. Use downturns to enter into positions that you are comfortable with. As money is printed by central banks, these assets will increase in value. Dividends are an added bonus.
Medium Risk: Low Risk + Bitcoin Hedge/ Growth-Based Assets
Take all the low risk strategies and add a Bitcoin position. Consider an 80/20 weighting. It is entirely possible that the gains from your 20% BTC position perform better than the 80% low risk assets. Again, see my Twitter, or previous letters for more BTC information.
You may also go the traditional route of identifying growth oriented companies and buying their shares. This applies to stocks and regular day-to-day business. Cash flow from dividends may be non-existent in this case.
High Risk: Bitcoin + Web 3.0 Assets
I personally don’t believe a Bitcoin position is high risk. It can be highly volatile but once you understand the technology and principles of decentralization, you will understand how to handle this asset. The same goes for the whole cryptocurrency asset class. Do not invest in this asset class thinking it is a get rich quick scheme. The volatility + speculation is very unforgiving.
Understand the future of finance and technology. This is Web 3.0 and it has an abundance of opportunities.
Cash Flow is plentiful in this space. 10% yields on your coins are common but one must also consider the risks I have mentioned in previous letters. Not your keys, not your coins.
Recommendation: Blend together all Risk Levels and weigh your position accordingly. An example could be 60/20/20. This could look like Value Stocks/Growth/Bitcoin OR Value/REITS/Bitcoin etc.
For investors with higher risk tolerance, consider positions like 90/10 of Bitcoin/Value or Bitcoin/Growth etc.
Small Detour: You may ask “Why only Bitcoin, what about Ethereum?”.
The ETH network has a different goal than BTC. ETH is not 100% decentralized, meaning the supply of coins/policies can be altered. Do I think it will increase in value over time? Yes. Will companies put it on their balance sheet? Probably not. Tesla, MicroStrategy, Square, SpaceX and others that have put BTC on their balance sheet have done so because it is mathematically scarce. It is akin to owning digital gold. An ETH position would fall in the same “High Risk” category as BTC and owning some is not a bad idea at this point.
Conclusion
The key takeaway is to get your money out of fiat. Your cash is losing value with every waking day.
Furthermore, it is important to understand that inflation is compounded. Most people fail to account for this. Beating inflation one year is no guarantee of beating it the next.
A 5% compounding would have been deemed a reasonable return to make money in the past. Today, this compounding is working in the opposite direction.
Here is an example:
You have $1000 in your bank account Jan 1st 2020. Government starts printing money and inflation is 5% at the minimum. On Jan 1st 2021, your $1000 is worth $950. On Jan 1st 2022, your $950 is now worth $902.50.
Realize how this has happened to every person in the last two years. If you didn’t own assets during this time, they became more expensive. This is what happens when more than 20% of a country’s money supply (cash) is printed within 18 months.
Plan now and reap the benefits in the future. Opportunities are abundant.
Disclaimer: The views expressed by the author are not intended to serve as any form of financial advice. This letter is for entertainment purposes only. Please do your own due diligence and research.
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