In today’s unpredictable and chaotic world, it’s actually a good idea to hold a lot of your net worth in cash. This is just my opinion, though rich guys like Tim Ferriss and really rich guys like Mark Cuban agree with me. At the moment, there are no single, large, mainstream investment sectors that have high odds of rendering a high return. Stocks and bonds are in historic bubbles. Real estate is also in a bubble in most parts of the Western world. Precious metals and commodities are reasonably solid, but aren’t going to burst in value any time soon (most likely anyway; as usual, no one can tell the future). Fiat currencies pretty much suck everywhere.

There will always be speculations like cryptocurrencies and Forex trading, but I’m not talking about speculations, only investments.

My biggest position right now is in cash, meaning American dollars, in some form or fashion. This means that while I’m not making any money in this particular investment, I’m pretty damn safe in that it’s very unlikely I’ll lose it, since not losing money is my primary investment goal. More importantly, if something does crash, I can use my cash to hop right in and buy it cheap, so I can make a killing later. This is how many millionaires were made during the Great Depression and other sharp historical recessions; some guys just held onto their cash while everyone else was getting boners about stocks, bonds, real estate, or whatever, then when everything crashed, they bought up everything in sight at massive discounts. When the economy recovered, and it always does, they made a mountain of money. I plan on doing something similar in the next crash (we’ll see if I can pull it off).

However! There’s one significant problem with owning a lot of cash. That is that the US Dollar is a horrible currency. It’s artificially debased, and based on pure debt and a lot of bullshit. I have said before that the most likely scenario for USA to collapse is a currency crisis where the dollar hyperinflates and becomes worthless. That means if you have a lot of dollars, they could suddenly become worth zero or close to it.

I don’t plan on this happening, or happening any time soon, but I do think it’s a possibility.

This is why if you hold a lot of your investments in cash, you must hedge that investment with gold. Gold is not an investment; gold is an insurance policy. If the dollar (or whatever currency your country uses) suddenly collapses, most likely, the price of gold will skyrocket. Gold tends to move in value inverse of the dollar. When the dollar crashes, gold does great. When the dollar rises, gold tends to drop in value or just sit there. This doesn’t always happen, since the price of gold is heavily manipulated by the elites, but it usually happens, at least eventually.

This means that if you have a lot of money in cash, particularly in US Dollars, I strongly suggest you take 30% – 50% of that cash and buy gold with it. This way, if the price of the dollar ever collapses, your gold will spike, covering that loss (if not actually making you a profit). Gold actually protects your dollars, in a weird sort of way.

I have a personal rule that at least 30% of all long-term US Dollars I own must be in gold. Sometimes this is a pain in the ass, but I think it’s worth it. Owning mountains of dollars with no gold is just too dangerous these days. The Federal Reserve has printed up trillions of dollars in new currency, and if Tantrum Trump gets his way, he’ll do a “George W. Bush” in that he’ll cut taxes without cutting any government spending, which means higher inflation, higher interest rates, or both. All of this is very bad for the long-term future of the US Dollar.

So yes, investing in a lot of cash is prudent… but make sure you hedge that cash with gold.

23 thoughts on “Always Hedge Cash Investments with Gold

  1. Hey Caleb, do you do research on crashes, investments, speculations, etc on your own?

    Or do you hire financial advisors of some kind? Like Doug Casey’s stuff?

    Do you think most financial advisors are even actually useful, or just a ripoff?

    Which types of financial/economic knowledge do you recommend an aspiring millionaire learn?

    And good luck trying to become a “Depression Millionaire!”

    If you really pull it off, maybe consider writing an article on how you did it. Hell, why not write a book on that?

     

  2. What is the best way to hold gold?

    Nonnumismatic gold coins.

    Hey Caleb, do you do research on crashes, investments, speculations, etc on your own?

    Or do you hire financial advisors of some kind? Like Doug Casey’s stuff?

    I do shitloads of reading, research, subscribe to many paid newsletters, and work with two different financial planners.

    Do you think most financial advisors are even actually useful, or just a ripoff?

    Most financial planners are simply salespeople for specific insurance and investment programs. Instead, you want to use a “fee only” financial planner who actually charges for his time via either hourly fee or percentage of return. Your odds are much better with those guys.

    Which types of financial/economic knowledge do you recommend an aspiring millionaire learn?

    Business and marketing.

    Your investments will never make you rich. Your business will.

    And good luck trying to become a “Depression Millionaire!”

    That is not my objective, but thank you.

    If you really pull it off, maybe consider writing an article on how you did it. Hell, why not write a book on that?

    I will, if what I do works well. It will be many years from now, if ever.

  3. Would you also recommand this to us, European fellows who own cash in euro currency ?

    To difficult to answer because Europe holds so many currencies, but the basic principle is the same, if not even more important, since Europe is collapsing even faster than the US.

  4. How about silver?

    Do you believe it’s more speculative compared to gold because of higher volatility?
    Or too cheap to hold in bigger cash equivalents (i.e. you would need to hold tens/hundreds of pounds of silver compared to much smaller weights of gold)?
    Or just too much added cost price because of VAT, which you don’t have on gold?

  5. Hi Caleb, thanks for the practical post.

     

    So do you hold T Bills, and if so, straight from Treasury Direct or through a broker?

    I am assuming you want as few layers of abstraction between you and your assets, but do you think the risk is that much higher using a broker to buy your short term bonds?

    I am also curious about your opinion on duration. Are you trying to get any return at all, and using I Bonds or something similar, or do you stick to durations a year and under?

    Last of all, have you toyed with the idea of just creating your own sort of personal money market fund by making ladders of various durations?

    You are probably more into this stuff than I am, and more willing to mess around under the hood, but if I am not seeking returns from cash, is there any reason why I cannot just have a ladder of thirty day bonds that just keep rolling over unless I take them out?

  6. How about silver?

    Silver is a fantastic investment right now and I own a shitload of it.

    Do you believe it’s more speculative compared to gold because of higher volatility?

    Eh, not really. Silver isn’t that volatile and it’s at a near-historic low. It’s price is manipulated by the big banks of course, but so is gold.

    Or too cheap to hold in bigger cash equivalents (i.e. you would need to hold tens/hundreds of pounds of silver compared to much smaller weights of gold)?

    I personally think that’s a bullshit excuse people use. I’ve already talked about how to store stuff.

    Or just too much added cost price because of VAT, which you don’t have on gold?

    I don’t live in Europe so I don’t have that problem. As I keep telling people, get the fuck out of Europe!

    So do you hold T Bills, and if so, straight from Treasury Direct or through a broker?

    I have a temporary holding bin of money that I use to move between investments that is a money market through a big broker that is backed by T Bills. Beyond that, no.

    I am assuming you want as few layers of abstraction between you and your assets, but do you think the risk is that much higher using a broker to buy your short term bonds?

    T Bills and short term bonds are two different things. But the answer to the question is no, I don’t see a higher risk between purchasing T Bills direct through Uncle Sam vs. doing it via a money market with Fidelity or whatever. The second option is much easier and less work though.

    I am also curious about your opinion on duration. Are you trying to get any return at all, and using I Bonds or something similar, or do you stick to durations a year and under?

    I do not attempt get any return on any of my cash investments, regardless if they are cash, money market, whatever. Regardless of the actual interest rate (if any) I just consider the return as 0%, no money lost, no money gained.

    I am holding cash for the long to medium term, well past a year.

    Last of all, have you toyed with the idea of just creating your own sort of personal money market fund by making ladders of various durations?

    No. It’s a waste of time to try to get 0.27% instead of 0.15% return. Your time is better spent elsewhere.

    You are probably more into this stuff than I am, and more willing to mess around under the hood, but if I am not seeking returns from cash, is there any reason why I cannot just have a ladder of thirty day bonds that just keep rolling over unless I take them out?

    I don’t see a problem with that other than the work involved. I’d rather just throw it into a money market and be done with it.

  7. I’ve done a lot of thinking about this. I’m not rich, but I have enough dollars to have retired young living off the interest. So losing it to inflation is what keeps me up at night.

    IMHO, the US dollar is still the best of the worst out there. When ever there is a panic anywhere in the world, scared money comes rushing into “safe haven” US investments. The last time we saw this was during the banking panic over Greece. A big reason why real estate is so expensive is because wealthy Chinese citizens are fleeing that system.

    For hyperinflation to happen, there has to be another safe haven. The other majors — Japan, the EU, and the UK are in far worse shape. (None of the others are large enough to be considered yet.) If one of them were to collapse, it could become the new safe haven as value investors rush in. So my gamblers “tell” on any dollar collapse is one or more of yen/euro/pound collapsing.

    I only hold about 5% gold because I can trade in/out of currencies rapidly. I figure we will have 18 months notice when the other crashes happen first. If you own real estate that should also be a good hedge.

  8. There are several FDIC insured banks offering 5-year CDs at around 2.25%. Find the more needy ones that only take 6 months of your earned interest for early withdraws. That’s how I’ve parked about half of my cash while waiting for the next crash.

    It’s not a huge amount of income, but it’s easy to set up and safe. Plus you can have it all back if/when something better comes along. Sort of like a not beautiful FB.

  9. Caleb, what newsletters do you subscribe to you that you mentioned?

    Interested in checking them out.

  10. There are several FDIC insured banks offering 5-year CDs at around 2.25%.

    Not bad for long-term cash.

    Caleb, what newsletters do you subscribe to you that you mentioned?

    I will answer that but not yet. I’m setting up a resources page here where I will link to all of the stuff I use, but I want affiliate setups before I do that. If I’m going to recommend stuff to my audience I want at least the opportunity to get paid for it.

  11. Think about those 5-year CDs in a different way. If you can get your money out with only a loss of some interest, it is like a 1-year CD that pays the rate of a long term bond. The banks are stupid doing this. But their mistake is our gain.

    One bank I saw got smart about this. Their early withdrawal penalty is to actually recalc the interest as if it was only a short term CD. Avoid.

  12. IMHO, the US dollar is still the best of the worst out there. 

    Incorrect. It’s still CHF Switzerland.

    When ever there is a panic anywhere in the world, scared money comes rushing into “safe haven” US investments. The last time we saw this was during the banking panic over Greece.

    Even if it’s true, that happen while US still hold it’s legitimate super power in financial resources (at least, was believed)

    So, how about when panics occurs on the US itself?!!

    TLDR;

    US Dollar is strong as long as any other majority nation in the world still believe/trust in its value.

    E.g, Look what happen recently when China try to bypass $ Dollar as its intermediate currency, whenever they do trades with other country that don’t involve/need US?

  13. If I’m going to recommend stuff to my audience I want at least the opportunity to get paid for it.

    Even it is including mediocre sources? and therefore diluted its contents quality? Or when the author itself don’t have skin in the game for that particular investment?

    As Taleb say, “Any BS opinion don’t weight any value as if it the result from brain of person* without risk involved on his/her side; especially that was produced by expert/analyst/academia/journos.” -self redacted.

    *) IYI = Intellectual Yet Idiot

  14. Is it better to buy silver/gold personally from a physical store or  to arrange it online in an offshore vault where they also store it for you? I was thinking the second options but there are minimum purchase amounts that are quite large or the fees are quite big in the ones I was able to find. (At the moment I dont have that much money in cash)

  15. Caleb, what newsletters do you subscribe to you that you mentioned?

    On money, a great resource is Mr moneymustache: https://www.mrmoneymustache.com/

  16. Think about those 5-year CDs in a different way. If you can get your money out with only a loss of some interest, it is like a 1-year CD that pays the rate of a long term bond. The banks are stupid doing this. But their mistake is our gain.

    One bank I saw got smart about this. Their early withdrawal penalty is to actually recalc the interest as if it was only a short term CD. Avoid.

    Great ideas. I love it.

    Even it is including mediocre sources?

    I don’t pay money for any mediocre newsletters. If they were mediocre I would cancel my subscription.

    Or when the author itself don’t have skin in the game for that particular investment?

    Most of them do, but you can evaulate each one when I post that list. No one is making you buy anything, so relax.

    Is it better to buy silver/gold personally from a physical store or  to arrange it online in an offshore vault where they also store it for you?

    If you have a lot of silver/gold, you should do both. If you have a little, store it yourself.

  17. Why not just by a gold ETF and call it a day?

    You certainly could and there’s nothing wrong with that, but it’s not the best way to own gold because of the disadvantages of gold ETFs, which are:

    1. There’s a paper trail (with gold coins purchased with cash there isn’t).

    2. The government can seize it (they can’t take your coins).

    3. Creditors can seize it (they can’t take your coins).

    4. Investment firms can default or initiate bail-ins (your coins will never default on you).

    5. Your government can make it illegal (that won’t affect your coins).

    6. It might not reflect the true value of gold (gold coins always will).

  18. Thanks for the great answers.

    I would actually prefer your solution of throwing all your cash in a reputable money market and be done with it as long as it isn’t substantially more risky than Treasury Direct.

    Good point about fussing for peanut percentage increases. I would rather not either.

  19. Hey Caleb, a couple of questions here:

     

    1. When you say you have most of your net worth between cash and gold, when you say cash, do you mean literal dollar bills or some other instrument? If they are literal dollar bills, are you not worried about e.g how to store it, what happens if your house takes fire, etc?

    2. Same question goes for gold. Since you have physical gold, how exactly are you storing it?

    3. And the most important question, you say you don’t lose money when you store it in cash. What about inflation? Wouldn’t that eat through your cash every year?

Leave a Reply

To leave a comment, enter your comment below. PLEASE make sure to read the commenting rules before commenting, since failure to follow these rules means your comment may be deleted. Also please do not use the username “Anonymous” or “Anon” or any variation thereof (makes things too confusing).

Off-topic comments are allowed, but Caleb will ignore those.

Caleb responds to comments in person, but he only does so on the two most current blog articles.

Related Posts

Begin typing your search term above and press enter to search.

Back To Top