Precious Metals - My Plan B
By Muhammad Ali
You may have heard me refer to precious metals as my Plan B, in several of my articles. If you haven't read any of my articles you can read them on my website, unless of course, you're on my website right now reading this article, therefore, just ignore everything I just said. ;)
OK back to the subject, precious metals and why do I consider them as my Plan B. The reason for this article clarification came about because someone emailed me, asking why do I consider precious metals as my Plan B.
Before we get into that, let me just clarify something else, what do I refer to as precious metals? Gold and Silver are the obvious, but I would also add in there stones and other metals as well. For stones, one may debate the risks involved as the purchase and re-sale values may be far apart, especially in the case of diamonds. Well for general purposes we'll just stick to gold and silver.
We can all agree that a Plan B is a back up plan, there's no question about that.
So one may assume that the precious metals you purchased is your back up plan, in case of a market crash or you've blown too much of your wealth and need to liquidate your assets to get back on track. If that's the case, that's fine.
However, I take it on a different level and I apply my precious metals as a Plan B to my investments.
I said, in a previous article, before getting involved in investing, determine your lifestyle choice for living after the RV. Do you want a simple work-free lifestyle or do you want to join Robin Leach's Lifestyles of the Rich and Famous? I used to love watching that series back in the late 80's.
In my viewpoint, it is important to determine your lifestyle first, the reason for this, it will determine how much you want to expose yourself in the markets. If you want a simple lifestyle then there's no point going Gung Ho and investing a huge amount. You'll be putting yourself at a higher risk in case things back fire on you and you suffer loses. Let's put some numbers down so the picture becomes crystal clear.
After our exchange, let's we say had $5 million and we choose to have a simple lifestyle and target to make $5,000 per month, in our mind, this is enough for us to have a work-free lifestyle.
If you invested $1,200,000 into a fixed deposit account making 5% per year, this will give you $60,000 per year or $5,000 per month. Bingo! And on a plug note: My Currency Exchange Planner software has an Investment tab to help you plan with this.
So if that is our target, then we should invest slightly above that $1.2 million target line, let's say $1.5 million. This gives us a little buffer room. If we invested our entire $5,000,000 but our target was only to make $5,000 then we have over exposed ourselves into the markets with a risk of losing $3.5 million if things turned to the worst. In this example, if we had $1.5 million of our $5 million invested, it means we have $5,000 coming in every month and we still have $3.5 million in our bank account. This plan will free yourselves of anxiety, stress and Sudden Wealth Syndrome. Of course, you still need to apply money management to the $3.5 million. Don't forget what I advised in a previous article to compound your profits for a few years, maybe 3 to 5 years. So your investment account can grow and give you a buffer zone to handle any losses that may or may not occur.
So if your lifestyle target is higher then you'll need to raise those numbers as required, but keep in mind your targets should equate to the exchanged amount after RV. You won't be able to live a Robin Leach's lifestyle if your exchanged amount was only $800,000. Please apply all your senses to your management of money, especially the greatest one, common sense.
Can you now see why it's important to determine your lifestyle first? You're lifestyles can change and adapt, that's entirely up to you. But your after RV lifestyle is directly connected to your investing.
Before we move on, something very important about Fixed Deposits, they are Guaranteed returns. Unlike investment in the stock market or commodity market, fixed deposits are not a risky investment as they do not depend on fluctuating market rates. Investors can rest assured that their investments are safe and will be getting back a guaranteed amount at the end of the tenure. Especially if the bank gives you a FREE toaster for signing up, right! On a serious note, enter your fixed deposit amounts in the Low investment category of the Investment tab in my exchange planner.
Now, let's get into Plan B.
What I am thinking and how I connect my precious metals to my Plan B, is like this. The precious metals are a back up to my investments. If the investments go bad, I won't replace the lost funds from my bank balance but from my precious metals. I would sell off the required amount in gold or silver to replenish my investment account. The goal is to always have $1.5 million in that account, as per my plan. Now, what I would do, is if I wanted to invest $1.5 million into the market, I would double that amount as my gold and silver purchase amount, meaning: If I wanted to invest $1.5 million I would purchase $3 million in gold and silver (combined), so what that means is my investing allocation combined with my precious metals would be $4.5 million. In the example above, if we only had $5 million after exchange then, of course, my precious metals budget would be bumped down or my lifestyle or both. Another CEP plug: My exchange planner has a precious metals planning tab that can help you plan your budget.
My thinking here, is to offset and minimize my investing stress by having a fund (in my case, my precious metals) as a back up in case there are losses. So I do not have to always worry, will I make money or not? If I lost money, my reaction would be, ok fine, I have a reserve fund option in place for that. So then, I can go about enjoying my day and my life without having to worry deeply about that.
Going back to the issue of compounding, you may also want to consider compounding a different way and using the profits from your investing for the first 3 to 5 years as top ups to your precious metal purchases. So then, I would still invest my $1.5 million but the $60,000 earned per year I would use that amount to buy more precious metals and increase my Plan B, until I have the 1:2 ratio. Remember this ratio is not written in stone, you can lower or higher the precious metals account as to what makes you feel comfortable.
Our target is to have a WORK-free and WORRY-free lifestyle. You've all read about work-free lifestyles and I have even mentioned it above but I hope my article today has taught you the bases and importance of adding into that a WORRY-free lifestyle.
You've got all kinds of options, you just got to start getting your plans down on paper and out of your head. My Currency Exchange Planner was perfectly designed for this.
So with that note, I will end my article, I hope it has been of interest to you and your planning after the RV.
God bless us everyone and may we all be part of the exchange process and what comes afterwards. Amen.
Thank you and I wish you all the success in your currency exchange.
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