Risky is the New Safe (7 page)

You have to manage your finances the same way. Your banker can probably give you some helpful advice on what kind of accounts you need. But she probably earns about $50,000 to $60,000 a year. So don't expect her to tell you how to become a millionaire.

Your accountant can probably offer you some solid strategies on reducing your tax liabilities. But if he's not financially free, don't expect him to teach you how to reach that goal. The same goes for your financial planner, stockbroker, and your cousins Pookie and Ray-Ray.

Expecting your government to provide for your retirement is like getting menu-planning advice from Hannibal Lecter. Don't pay any attention to their figures and forecasts of what you will have. All pyramid schemes promise those kinds of returns.

And don't count on your company pension plan, either. Take a cue from all those airline employees who saw half of their retirement fund vaporized when their carrier filed for bankruptcy and got their pension fund obligations wiped away.

You have to take responsibility for your own prosperity and build enough of a retirement fund to live well. Anything you receive in a government or corporate pension is gravy you can use to gamble with or add to your Beanie Baby collection.

There are a few ways to do this:

Do not put all of your retirement in one currency
. You should be split into at least three or four different currencies. Remember these are all fiat currencies subject to political manipulation and public perception. In some countries, you can even set up your retirement fund to be in Swiss francs. (If the European Union really wanted to make the euro work, they should have modeled Switzerland. It's a country with four ethnicities and languages, financially strong cantons, and a single currency. Because they have reasonable privacy laws and aren't a war-mongering country, their currency is more stable than most.)

Don't keep all your assets where you live
. You may think governments can't go bankrupt, but they can—and will. I like to think we can never have a run on the banks again, but that's a pretty optimistic outlook in light of current government fiscal policies.

If a banking system in a country collapses, the entire infrastructure goes right behind it. ATMs run out of cash, gas stations are sucked dry of fuel, and looters feel free to break into supermarkets and appliance stores. You have to be prepared for a currency to become worthless overnight or a country to become uninhabitable in a matter of weeks. Instead of a primary residence in Chicago and a vacation home in Florida, think of having your second residence in another country—preferably on another continent.

Buy it
. Great investment. Just make sure you do it the right way.

Forget all these crazy leverage deals with little or no money down. Put down a strong down payment or pay cash. If you finance, use a mortgage acceleration program and pay it off as soon as you can.

I know famed investor Robert Kiyosaki doesn't consider a home an asset, but I'd disagree with him. Owning property is good because land is another finite resource that will ultimately hold its value and appreciate.

Yes, real estate values will rise and fall, just like everything else. And while the subjective value of an area may fluctuate, values also run cycles. A property in a declining neighborhood might turn into a fortune when the area rebounds. And even given the market vagaries, land is still a limited resource whose value always seems to bounce back eventually.

The key is to never buy a property you will be forced to sell in a downturn. Put enough down so you could weather a one- or two-year downturn and still make the payments, even if you had no renters or renters who stay and don't pay. If you are able to wait out downturns like this, property will always rebound.

Always be looking for which direction the masses are headed, and ask yourself what the pushback effect will be. (More about this in the next chapter.)

The more governments play games and devalue currencies, the more the value of precious metals like gold, silver, and platinum will rise. These metals are the only real currency in the world. Everything else is a promise to pay. And you can't trust the governments that are making the promises.

You should own some of all three precious metals I mentioned and continue to add them to your portfolio. And by own, I mean
take possession of the physical metals
, such as keeping gold bars in an easily accessed safe deposit box. Precious metals are the only real borderless currency.

Just like currencies, you don't want to keep all your precious metals in one country. I would keep most nearby, but have some in another country as well.

You can buy gold over the counter at an offshore bank or through a precious metals dealer. I like European banks because they are the most experienced at this, and renting a safe deposit box in Europe is quite inexpensive. These banks will usually want you to have an account there, but that's a good idea anyway. If you don't want to have an account with a foreign bank, you can store gold in a private vault.

There are two ways to buy gold in this medium: unallocated and allocated.
Unallocated
, also known as a
claim account
, is where the bank buys gold on your behalf. This is technically a “specific but undivided” situation. You would own a fractional interest in a 400-ounce gold bar. Stay away from this option because of the messiness of the ownership. (Also, when banks have become insolvent in the past, this gold has been considered an asset of the defunct bank and available to creditors.)

You are much better protected with
allocated
or, as it is sometimes called,
custodial storage
. The bank purchases your specific and divided gold off the books of the bank, meaning it is
your
asset, which they are simply storing for you. Purchase and storage costs are higher but worth the extra security.

I'm not recommending you buy and trade these bullion bars. That's for the day traders. You buy and hold them. Forever.

It doesn't matter what the market price is and how it goes up and down. You're looking for long-term security, not daily gains.

One other possibility to consider is precious metals certificates. My favorite of these is the Perth Mint Certificate. You buy the gold from wherever you are in the world, and they store it for you at the mint in Perth, Australia. (Like with the bank purchases, you can choose unallocated or allocated.) If you are a U.S. resident, you may want to check with a tax attorney but it appears that owning gold certificates does not require you to report that to the government as a foreign account.

The company that administers the program and stores your gold is owned by the State of Western Australia, who has guaranteed it will make good on any default by the company. It is one of the richest states in the country and, last time I checked, it had a AAA-rating from Standard and Poor's. So while I never really trust governments, I think that gives it a low-risk quality and allows you to diversify some assets overseas without flying to another country, physically taking gold to safe deposit boxes, and so on.

If you want to diversify even further, you might consider buying stocks of companies that mine precious metals. Their fortunes are tied to the price of the metals so the stocks respond accordingly.

Gold was almost $300 an ounce when I first started recommending that people buy it—and everyone thought I was crazy. I've never backed off, and even as it broke $500, $800, and $1,000 benchmarks, people kept deriding me. But I'm creating my future, not competing on
American Idol
.

As a rule, commemorative gold and silver coins are not a good investment and don't justify the price they command. But you do want to have a small supply of them for an emergency. In case of a banking system meltdown, trading real gold or silver coins may be the only way to purchase fuel or food in a time of civil unrest. You can keep a small amount in your home safe and some extra in a nearby safe deposit box.

People still ask me if I think gold has peaked and will soon crash. All I know is I'm not selling any. With the current state of government budgets and currencies, I see no reason that gold can't go to $15,000 an ounce one day. I'm not saying it will, but I won't be surprised if it does.

When they start mining asteroids in space, gold may plummet to $200 an ounce! Someone will take the risk of investing in mining in outer space (Planetary Resources, whose investors include James Cameron and the Google boys, are already in the game), and could develop technology that allows them to bring precious metals back to earth cheaper than it costs to mine them here. That will change the markets in precious metals instantly.

And the same thing will happen in real estate. That oceanfront property you own in Florida will only continue to appreciate, because they're not making any more oceanfront land. But when developers start selling ocean-
floor
property, the market will adjust! And when developers start selling timeshares on the moon, the market will adjust again! And remember—we're not talking next century. For some of this, we're probably not even talking next decade. (Sir Richard Branson and his Virgin Galactic will be flying tourists into space starting in 2013.)

What makes risky the new safe is taking calculated risks based on sound information and intelligent assumptions. It's doesn't mean that you take risks for the sake of risk. So as you prepare your portfolio, here's a simple guideline I use for allocating my own investments in terms of risk.

Put 50 percent of your portfolio in no-risk/low-reward investments. That means, theoretically, you can't lose your money; but of course, we know there are no absolutes in this case. The kind of investment I'm talking about is a savings account or certificate of deposit that comes with a government-backed guarantee. I do feel secure enough with precious metals to include them in this category.

A lot of sophisticated investors shun these low-reward investments because they're looking for higher yields. But that's why so many lost everything in the dot-com bubble, the real estate meltdown, or investing with Bernie Madoff.

I used to brag that if I lost everything, I would be a millionaire again within a year. Then I proved it. Then I decided it might be simpler if I just
didn't
lose everything.

The next step is to put 25 percent of your portfolio in moderate-risk/moderate-reward investments. This is where I'd classify things such as real estate and stocks.

And finally, you can put 25 percent of your portfolio into higher-risk/higher reward scenarios. This is when your cousin calls and tells you he's invested in an oil well and getting 2,000 percent return a year. Check it out and if it looks real, take the risk. But just because it works out for six months, don't take everything out of the other two categories and dump it into that. Pigs get fat. Hogs get slaughtered.

Governments—even the well-meaning ones—are inherently corrupt and mismanaged. They never create prosperity—they squander or obstruct it. At best, they can facilitate an environment that allows free enterprise to prosper—and only free enterprise can create true prosperity.

The writing is on the wall: There will be serious economic upheaval caused by governments foolishly trying to micromanage economies. People who rely on governments for their retirement will get hurt. But for those who understand the reality of the situation, there are more opportunities than ever for creating wealth.

So far I've taken my speeches and workshops to more than 50 different countries, and that has presented a pretty fascinating dynamic.

I recently returned from Sofia, Bulgaria, where about 2,000 people paid quite a bit of money by their standards to come and hear my prosperity workshop. When I'm doing programs in Moscow, some people travel 30 hours by train or five days on the road—often sleeping in their cars—to attend. I did an all-day program in Kiev for 7,000 people in a gymnasium with no air conditioning where the temperature rose to over 100 degrees. Ten or 12 people left by ambulance with heat stroke, but nothing short of that was going to cause anyone else to leave.

Countries like Slovenia, Croatia, Macedonia, Latvia, and Lithuania are all facing a similar situation. Citizens of nations in countries where free enterprise was forbidden or held back by Socialist or Communist rule are now unleashing the pent-up demand for success they've had for decades. The level of passion, intensity, and urgency with which they attack opportunities is simply amazing to witness.

Books, and the authors who write them, are revered in these places, and seminars are considered life-changing experiences. People in some of these countries are so eager to get a photo or have a book signed that I need six bodyguards to get me out the backstage door and into the car safely.

The hunger they demonstrate is simply not apparent in most Western countries today. Offer a success seminar in London and you'll likely hear, “Too bad it's near Heathrow. Just can't fight that traffic. Let me know if you do one close to Gatwick.” People in Miami think the 20 miles to Fort Lauderdale is too far to drive; people in Manhattan don't go to Queens, and Brooklynites won't take the ferry to Staten Island.

Now don't get me wrong: I'm blessed to have a lot of people who follow my work in the West, and they're very passionate about success and willing to do what's required for it. But if you take populations as a whole, comparing those in Western countries with those in former Soviet Bloc countries, you see a big ambition gap.