What happens next? That is the question most Investors are asking in light of the continuation of economic uncertainty on a global scale. Every day news broadcasts are filled with stories of governments so debt-laden as to be nearing total collapse, unemployment rising, collapsing banks, massive monetary bailouts, recession and the prospect of more quantitative easing pushing up inflation to potentially unlivable levels. So where on earth do you look to find decent returns whilst managing the risk to capital that currently defines traditional financial market investments?
Well there are of course opportunities for those holding hard cash to capture profits and benefit financially from prevailing market conditions. Those in the know are picking up cash-generating assets at knockdown prices from debt-laden distressed sellers keen to rid their balance sheets of ‘toxic’ assets in exchange for liquid capital. Other are choosing to align their investment strategies with basic socio-economic and demographic trends, acquiring productive natural resource assets likely to remain in high demand as the global population creaks its way toward potentially unsustainable levels. Certainly in the current climate, there is some wisdom to holding income generating assets and simply waiting out the on-going debacle, no matter how illiquid they might be in the short term. And of course owning tangible, physical property assets is unlikely to cause a total capital loss over the mid-to long-term, whilst owing assets that produce commodities essential to the human function such as food, energy or other raw materials all but guarantees a consistent stream of future income and makes for a solid long-term store of wealth.
It makes a certain amount of sense to allocate at least some capital to investments that generate a consistent stream of income which can be held as liquid cash, or periodically reinvested in other assets creating further diversity (risk management), and growing the size of an investment portfolio organically, and eventually exponentially. Using solid, physical property assets as a base asset to generate reinvestment income can afford the Investor the opportunity to generate compound growth, and whilst it may be difficult or expensive to sell such an investment in the short term, this strategy protects capital in the long terms as good quality property assets will always retain a capital value, and for the most part will always be sold for a profit provided sufficient time has elapsed between acquisition and disposal.
The alternative of course is to hold cash, and watch as each year the purchasing power falls as inflation eats away at the true value of fiat currencies. It may be deemed low risk told keep thousands of pounds, dollars or euros in cash, but in 5 years’ time that cash will likely buy you only a fraction of the goods and services it would buy you today, so in real terms you lose money.
So the moral of the story is; invest in physical, tangible assets that generate income for at least part of your portfolio, use the income wisely and expand your portfolio by acquiring other income generators like dividend stocks, or hold it as a short term cash reserve in a high interest account. At least this way when the markets finally steal all of the value form stock investors – you’ll still have an income – and some cash to pick up the bargains.