old Chinese gold coins (Photo credit: epSos.de)
1. Invest money in precious metals.
Even the gold pessimist Jon Nadler recommends that it is wise to store about 10% of your net assets in the form of physical, allocated gold. This means gold you hold in direct physical possession, or in vaults overseas.
FOFOA also has excellent economic and monetary commentary which lends a strong case for keeping some assets in the form of gold, as monetary systems collapse and reset around the world.
2. Never sell at the bottom of a crash.
Man, you would be hurting if you had sold all of your equity in 2009. It was a great time to pick up on additional stocks, or precious metals for that matter. If you want a good long-term return out of your stocks, it’s imperative that you buy when prices are low, and ride out the tough times.
3. Never withdraw more than 3.5% of your portfolio.
The historical recommendation is 4%, but 4% can destroy you during tough times. 3%, on the other hand, provided at least 50 years of withdrawals, even through the great depression. I suggest 3.5% as a good middle ground, and lowering that as the markets rise so you withdraw 3% or less.
4. Save 50% of your net income.
Why 50%? If one partner stops working, you can survive. If you experience an unexpected expense, you can cover it out of income. If you lose your job, you’re not totally screwed. Saving 50% of your net income is also a rapid route to financial independence. Down payment of debt principal counts toward this 50%.
5. Don’t spend more than 33% of your net income on total housing expenses.
Banks love to lend you more money than you can afford. I recommend that after adding up all of your housing expenses, the total should be 33% or less than your net income. Why? This gives you ample buffer should taxes or interest rates go up, you get an unexpected assessment, a partner loses their job, etc…. it is a good way of staying within your financial means and protecting yourself from getting financially destroyed.
What are your own tips to help protect against getting financially destroyed?
I would agree with everything but #1. You can easily get destroyed owning precious metals, and many people will in the next 2-3 years when gold prices fall back down to “normal” historical levels.
My uncle was a firm believer in #1, but he almost went broke when gold and silver crashed in the late 1980s.
Hi Robert,
Thanks for the feedback. The 1980s crash was rough to be sure, and sorry to hear that happened to your uncle. Anything can become bubbled, including silver and gold. What catalysts do you see that would lead to a rapid rise in the value of the dollar and subsequent deflation in the price of commodities and the demonetization of precious metals, this time around?
Prudence is warranted on both sides of the fence, but with what I see in terms of debt and demographics, I do think that 10% is good insurance to have, as well as a way of voting with your dollar and withdrawing support if you happen to feel unease with all of the bailouts and heavy spending.
I don’t think I’m up to 10%, but I have a fair bit of “sweat of the sun” and “tears of the moon”. Just another asset class.
Depending on what happens, exactly, with the current monetary order over the next few years, 3% to 5% might be enough to compensate for paper losses. In any case, just another asset class as you said, to go along with your home, your other investments, and the most important assets of all, family and health.
I believe that withdrawing 5% from an account for year long living expenses is to much. I prefer 3.5%. And even thats a little to much for my taste.