It’s time.
If we want to secure our finances and live a comfortable lifestyle, it’s time to bulletproof our money. We can’t put it off any longer.
As we’ve been discussing, the Age of Paper Wealth is over.
From 1982 to 2022 interest rates always went down and stocks always went up. That made investing easy. All you had to do was buy some growth stocks and come back in five years… your account would be up.
Those days are over.
If we want to make money in the markets today, we must focus on five core investment themes. They are:
- Reserve Assets
- World-Class Insurance
- Energy Renaissance
- Gold Equities
- Consumer Goods Inflation Hedges
We need to spread our money out across these five asset classes, each for a different reason. But they are complimentary. And together they will make our money bulletproof.
Let’s talk about reserve assets today. Then we’ll dive into the others the rest of this week.
Reserve assets are assets that will maintain their value over long periods of time. These are assets we should routinely accumulate regardless of their spot price… and then never sell.
The two primary reserve assets are physical gold and Bitcoin.
They both serve the same purpose within a properly constructed asset portfolio. But there are some nuances that differentiate the two.
When I talk about physical gold, I’m referring to standardized coins and bars that derive their value from the weight of gold they contain.
Gold is often lumped into the “precious metals” category along with silver. But at this juncture I far prefer gold to silver. That’s because silver has become more of an industrial metal. It’s used widely in every consumer electronics device out there.
Meanwhile, every major central bank in the world holds gold on its balance sheet. And many central banks have been buying gold hand-over-fist in recent years. It’s truly a monetary metal.
The beautiful thing about gold is that it’s one of the few assets that’s not also someone else’s liability. In financial lingo, gold has no counterparty risk. When we own physical gold, we are not reliant on another party to honor its contractual obligations to us.
This is not the case with cash in a bank or securities held at a brokerage.
With those assets, we rely on the bank or the company we’ve invested in to be honest and stay solvent. As people who banked with Silicon Valley Bank (SVB), Signature Bank, and First Republic found out earlier this year – it’s not pleasant wondering if your assets are safe after your bank just failed.
This is why I see gold as the cornerstone of my asset portfolio. With gold I know that I’ll always have a store of value available to me no matter what happens out there.
And make no mistake about it, there is a liquid market for physical gold in the US and every major country on this planet.
Buying and selling physical gold is simple. You just have to know where to find the good gold dealers. Then you build a relationship with them.
As for Bitcoin – it is both a payment network and a currency wrapped into one. Perhaps this doesn’t sound too important on the surface… but let’s think about it a minute.
To my knowledge there has never in history been a payment network that also supplied its own independent currency.
Instead, we’ve seen all kinds of currencies come and go over time. And we’ve also seen many different payment networks arise – especially since the internet came about.
Think about the US dollar. It is the de facto reserve currency of the world… at least for now. But how do you spend dollars?
Well, if you have physical cash, you just hand your dirty paper notes to somebody in exchange for the goods and services you want.
But what about credit card payments? Those require payment networks like those built by Visa, MasterCard, or American Express.
And then there’s online and mobile payments. We’ve got networks like PayPal, Venmo, Square, Stripe, and others.
And what about cross-border transactions? You’ve got to go through something like Western Union or MoneyGram. Or, if you’re a bank or financial institution, you have to use the SWIFT system.
The point is there are all kinds of disparate payment networks designed to get dollars from one person or account to another.
With Bitcoin, it’s much more simple. Bitcoin is the payment network. And bitcoins are the currency.
Notice how I capitalize the ‘B’ in Bitcoin when I refer to the network. And I use the lowercase ‘b’ when I refer to the currency. That’s the proper way of doing it… I don’t care what the Associated Press says.
Here’s the thing – Bitcoin’s real value is in the network.
The Bitcoin network is not owned or controlled by any corporation, government, individual, or group of individuals.
Instead, it’s governed entirely by open source computer code. We know exactly what the code says. That’s the beauty of this.
Thus, we know exactly how many bitcoins are in circulation at any given time. We also know that there will only be 21 million bitcoins ever created. And we know that the very last bitcoin will be mined in the year 2140.
This level of transparency puts everybody on an even playing field. There are no insiders in the world of Bitcoin.
By the way – 19.5 of those 21 million bitcoins are now in circulation. That means 93% of all the bitcoins that will ever exist are already here. We’re going to spend the next 117 years mining the last 7%.
That shows you just how scarce this asset is.
Now think about this – close to 70% of all bitcoins in circulation have not moved in the last twelve months.
Those in the know are accumulating. Because at some point our society will consist of two kinds of people – those who hold bitcoins and those who don’t. That’s how scarce this thing is.
And that’s exactly what we should be doing too—with both gold and Bitcoin. These reserve assets need to be the cornerstone of our asset portfolio.
When it comes to portfolio construction, I think it’s wise to move 5-10% of our assets into gold and 5-20% into Bitcoin. Then we can go into accumulation mode.
For Bitcoin, I buy a little more every Monday morning. Like clockwork.
For gold, I pick up a few more ounces every year around the holidays. I make them a Christmas present to my children, and I attach a nice dated note to the box.
The note says that I love them and I’m excited for them… but they better not sell this friggin’ coin if something happens to me.
Reserve assets are forever.
-Joe Withrow
P.S. If buying and never selling sounds boring—don’t worry. The rest of this week we’ll talk about the asset classes that will do quite well in the years ahead.
And if you’d like a holistic view on how it all fits together, check out my new book Beyond the Nest Egg. You can find it on Amazon right here.