CHISWICK, WEST LONDON – Greetings from my childhood home in England…
It’s time for our weekly mailbag edition, where I answer the latest questions you’ve sent in.
This week we received so many messages from you encouraging us to keep Mum’s house and settle down for a while. (I published many of them in Wednesday’s Postcard.)
I admit, this surprised me. I was expecting the opposite. If we had any doubt about this decision before – which we did – we don’t anymore. We’re going to stay. Thank you!
(I’ve said this before, but I’ll never get tired of repeating it. Your messages and feedback keep us going. I would have quit writing these Postcards years ago without your encouraging and supportive messages. As always, write us at [email protected].)
Today, we talk about gold-backed cryptocurrencies…
The debate around whether the kids should go to university continues (catch up here)…
And we discuss “Income for Life” – which, as longtime readers know, is a whole-life insurance policy that can pay 55 times more interest than banks. (It’s one of the world’s most generous retirement secrets.)
All this and more in today’s mailbag, so let’s dive in…
Reader question: What are your thoughts on the cryptocurrency PAXG, which is a proxy for holding one ounce of allocated gold in a London vault (if I’m not mistaken)? I’ve checked the company and they allocate 100% bullion and hold it in storage. Seems to me this could be one of the best ways to store gold and not incur storage fees nor storage problems (theft, destruction, etc.).
I won’t comment specifically on PAXG as I haven’t done any due diligence on their project.
However, I love the idea of a secure and tradeable digital certificate 100% backed by a big pile of gold in a vault somewhere underneath London or Zurich.
It’s the Holy Grail of money and banking, isn’t it?
Let’s watch these projects build their reputations to a point where we can trust them with large sums of our capital.
Reader comment: You’re forgetting something, Tom. It’s often not what you get to know at university which counts, but who you get to know. Don’t deprive your kids of that chance.
University isn’t the only place to make friends. Anyway, they can go to university if they choose to. Once they’re adults, our children will be free to do with their lives as they choose.
Reader comment: Although I was an honor student, I think my school “education” was more about learning to be obedient than learning to think for myself. The things I’m best at, and am known for, are the things I learned on my own by simply following my interests at the time I was interested in them.
I was blown away about the things my young daughters figured out for themselves, without ever being taught them, before they went to school. Once in school, their brilliance seemed to have been severely tamped down. Partly by the chaos of so many kids clamoring for attention (boys demanded, and got, the vast majority of a teacher’s attention) and partly by the rules needed to try and keep some order in a large class size.
Schools seem to teach what to think, rather than how to think. That said, my daughters also thought the homeschooled kids they met were weird. Personally, I think it is the fundemented (my own word) parents who keep their kids out of school, to try to prevent them from learning things they don’t want them exposed to. That is what gives homeschooling, and homeschooled kids, a bad name.
I hope our kids aren’t weird. We’re trying hard to expose them to as much as we can. But not so they aren’t weird. So they can find things to be passionate about and invest themselves in.
The power of compounding doesn’t just apply to money. It applies to knowledge and skill, too. The sooner our children find something they love to do, I think, the better off they’ll be in life.
But the universe will open more doors to them if they’re people other people like being around…
Reader question: I have read your Whole-of-Life Insurance policy work – but despite some efforts to talk to a few mutual life companies in the U.K., I can’t find anyone that understands, and will effect, something similar to what you recommend – and have effected for yourself!
Given that you are in London dealing with your late mother’s affairs (and I am truly sorry for your loss as I have elderly parents also – and don’t know what I will do without their unconditional love and words of wisdom when they do leave our planet), are you in a position to suggest any U.K.-based providers that may be able to assist?
I’ll keep looking into this. But here’s what my life insurance agent, Patrick Donohoe, told me:
The U.K. has several carriers that do whole life that have cash values. As far as flexibility of policy design, cash values, policy loans, etc, I am unsure about the details.
Policy design in the U.S. is largely influenced by tax law, how advisors are compensated (commissions), and more competition among carriers. The U.K. has different taxation and because they banned commissions 10 years ago, there is not much competition and innovation, from what I hear.
I think vanilla whole life insurance is such a great idea for families. This week, for example, I learned that our policies – which we started 10 years ago – are now fully self-funded.
This means that Kate and I will never have to pay another cent for our permanent life insurance coverage. Our policies will now pay for themselves through the interest and dividends they generate.
We call this “auto-pilot.” (We have six policies and our policies confer a total $9 million in death benefit. This $9 million will continue growing every year.)
It’s of great comfort to me that if I died tomorrow, Kate and the kids would have plenty of dollars to keep them going. Or that we can spend all our life savings having adventures over the next couple of decades, and when it runs out, I can simply die and Kate and the kids will still be provided for.
And in the meantime, we can borrow from these policies to buy gold or start a business if we want.
Reader question: When the global currency debasement occurs, all currencies lose value. Not against each other… but against goods and services (that includes labor). The people hurting will be savers and those on fixed incomes (hardworking Americans and retirees). The people benefitting will be holders of hard assets (the rich) and debtors (the U.S. government and corporations).
Isn’t, therefore, getting into debt an option, almost better than gold, because you get the money up front, instead of having to put it out and you pay it back with devalued dollars? Ergo big corporations with giant debt loads come out winners, once again. And return on investment is phenomenal and if you use the proceeds to buy hard assets… wow!
It’s true. Currency depreciation benefits those who have borrowed in the currency, invested in hard assets, and then get to pay the debt back in watered-down currency.
I’ve been tempted to do this trade myself by borrowing dollars from our life insurance policies, for example, buying gold or cheap tanker stocks, and then paying off the loans over the next 30 years in depreciated dollars.
Another way to make this trade would be to buy a property with a 30-year mortgage and then watch the real value of those fixed mortgage repayments decrease to almost nothing over the next 30 years, as the property holds its value in real terms.
I don’t know. I’ll keep thinking about this idea. If gold should ever go below $1,500 an ounce again, for example, I’d be sorely tempted. Or if we found some other great asset at a fair price. But otherwise, the idea of being in debt stresses me out. I value my sleep too much.
Reader question: Do you regard residential property in London as a hard asset? And does it provide a hedge against inflation and currency debasement? If you think it does, you have the benefits of giving you some diversification and you can live in it (or rent it) on a long- or short-term basis to generate an income.
The currency devaluation won’t influence all hard assets the same. I think it’s a big mistake to expect that. Inflation, currency debasement, and financial repression is no joke.
While gold will keep its purchasing power, I’m not sure much else will. Currency depreciation removes almost all incentive to be an investor… and could even reverse the big trends of the last 40 years.
Remember our simple rule for investing over the next decade: Expect whatever did well since 1980 to do badly and whatever did badly since 1980 to do well.
I worry my mother’s property will be a victim of this cycle reversal. Meanwhile, gold and silver are 62% and 415% below their inflation-adjusted highs of 1980.
Reader question: I would like more of your opinion about silver. It seems like it is a valuable metal for the electrical world of the future, and supplies are declining. It may not be as expensive as iridium, but there is nothing like silver for so many electrical uses. Could you increase our position in silver? Either a silver mine or 1,000-oz. silver bars kept in Sprott or a similar depository?
I like to hold silver in a ratio of about one part silver for every three parts gold.
Reader question: I resonate strongly with your thoughts about gold. And several years ago, I intellectually bought into Bill Bonner’s concept of cycling between gold and top-quality stocks based upon market cycle conditions. While this is a simple system, and as an engineer I’ve been taught “simple is good,” I can’t help but wonder why other physical assets with intrinsic value aren’t also the logical equivalent to gold, particularly because of their utility in inflationary times.
During the recent oil slump, I heavily invested in oil companies, including oil pipelines, believing that the brief negative price of oil was an unprecedentedly obvious time to enter that market. I’ve maintained those holdings since. These stocks, together with gold royalty companies, currently provide very rich dividends (cash flow).
I am curious why you have expanded to iron (e.g., dry bulk carriers) but have not embraced the cash-flow part of commodities. I look forward to reading your insights.
I think we’re on the same page. I felt that our shipping trade was a great way to capture all these trends in one simple way.
Not only do we own the steel, but we own the cash flows it generates from transporting basic commodities like energy, iron ore, and containers around the world. And we also benefit from greater environmental regulations, as they will constrain the supply of ships.
As shipping investors, the one thing we must watch out for is the turn from “inflation” sentiment to “stagflation” sentiment.
For my money, gold is the single greatest position of all – especially if you don’t want to watch the markets closely, as it performs well under either scenario. I’m not so sure the equities of basic materials companies will fare so well against stagflation…
And that’s all we have time for today! As always, please keep writing us at [email protected].
I can’t give personalized investment advice, but I’ll answer as many of your questions as I can in future Friday mailbag editions.
– Tom Dyson
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