My soon to be 5th grader, Tyler, is preparing for football camp this week. As a concerned and excited parent, of course I am doing all I can to protect him including making him trail run, lift weights and eat right. I am buying him all sorts of protective gear so he a can hustle out on to the field to hit hard and be safe. Recently, it dawned on me that due to circumstances out of his control, his financial future may look entirely different than mine. And I feel the need to help protect him from that too. So, what sort of global trends can we identify now in order to proactively respond to help kids get a head start? It’s a large topic, but I’ll break it down into three areas worth thinking about:
1) The devaluing of the US dollar: Ever since Nixon decoupled the US dollar from Gold in August of 1972 as its valuation standard, the US dollar train has been on a devaluation collision course. We are the unlucky recipients of a government that has been spending out of control since Nixon enacted this historic event. As the dollar loses its purchasing power, the wages of the average American can not keep up with their required spending power. The end result: Inflation that outpaces wages.
Answer: Invest in tangible assets of which the value and cash flow component rises with inflation. i.e. Long term cash flow real estate, oil and gas wells, and multinational large cap companies which pay good dividends.
2) America’s wealth gap: According to Emmanuel Saez, a professor at the University of California, Berkeley, during the post recession period of 2009-2012, the rich snagged a greater share of total income growth than they did during the boom years of 2002-2007. The illustration below helps put this wealth gap into perspective.
Answer: Provide your children with the street and entrepreneurial smarts to create their own wealth. Don’t teach them to work for other people and their money, yet teach them to have their money and other people work for them. Introduce them to books early on like Jeff Olsen’s, Success for Teens. http://www.amazon.com/Success-Teens-About-Using-Slight/dp/0979034159
3) The environment: Recently a CNBC article highlighted an “economic time bomb” which may cost the world $60 trillion due to the world’s fast changing climate. http://www.cnbc.com/id/100912062. Since the Arctic ice has been recorded in 1979, last summer marked the lowest levels of ice on record. Now, I am no environmentalist, but the ramifications are pretty alarming.
“However, the Arctic’s pivotal role in regulating the oceans and climate means that as it melts it is likely to cause climatic changes that will damage crops, flood properties and wreck infrastructure around the world, according to research by academics at the UK’s University of Cambridge and Erasmus University Rotterdam in the Netherlands.”
Answer: For a long term investing horizon like Tyler’s, my answer to this threat would be to purchase real estate in cooler mountain regions. If Florida, Arizona and Texas are recording extreme heat like never before and sea levels are predicted to rise, it would make sense that the acquiring cash flow commercial real estate at higher elevations might provide a hedge against this threat.
As an investor, you want to choose your options carefully. There are many alternatives to the stock market for you to invest. Resort Realty Capital is currently searching for value-add and opportunistic real estate acquisitions in 12 Rocky Mountain markets through our broker partners. If you would like to learn more, please contact us.