Finance guru and CityOut Monaco owner Greg Thain reveals why destroying, not accruing wealth, is the key government strategy for survival in the current economic crisis. If you read one article on wealth management this month, make sure this is it.
‘No news is good news’ seems to have been the mantra for the financial press over the past few years. No one seems to have predicted the extent of the economic crisis, nor found a way out of it. Here’s some advice you may not want to read:
Over the next five years, your wealth needs to be destroyed by between 30 and 50%.
Shocking advice, but that’s because very little is written about the real problem behind the global financial problem: historic false profit.
During the past 30 years, unnatural yields have been at play. We all believed and demanded returns of 10% or more. We believed the promises of bankers and brokers without ever considering where this ‘profit’ was coming from. To make money, someone has to lose money. Now it’s payback time as we all struggle to re-connect the disconnect!
Today most banks are bust. Yes, really bust! If they were companies, they’d have been liquidated long ago. They keep their worst debts off their balance sheets, even when given new money by governments to invest. The hope by the politicians is that money will eventually re-enter society, businesses will again flourish, and economic growth will return. The reality is a lot of this bail-out money is just paying bankers’ salaries. Don’t be duped that the banks are keen to invest in new start-ups and ventures. They just don’t have the money. Their strategy is ‘survival’, not ‘investment risk’.
How will countries cope losing 30-50% of their wealth? The answer is with difficulty. Currencies are set to lose value. Short-term strategies, like printing more money, are not long-term fixes.
As unemployment rises across Europe, how are businesses and governments tackling the issue. Jobs for the young? More government jobs? Not at all. Employment opportunities are going where the labour is cheap, a country’s laws allow a business to make money, and the local markets have size and demand. New activity is forecast to be 80% in Asia 80% and 10% in both Africa 10% and South America.
The other government strategy of taxing the rich is deeply flawed. In France, how many wealthy business owner are now considering moving overseas? A lot, I suggest, and only limited by the poor choice of locations (to be subject of a future article). Remove the incentives for companies or individuals to grow and make business, and they’ll look for new opportunities elsewhere.
So what’s the solution? The only sensible solution is to revert to the ‘back to basics’ approach and take control of your own wealth management. If you are buying a business, someone making 5% a year over say 10 years is doing very well. 3% a year over a good period is fine. Why should reasonable income expectations be higher!
To help you begin to manage your own money for a better chance of surviving in the future, here are my 6 investment options:
- Spread Your Portfolio. Across both industry sector and country – because no one can be 100% the future.
- Target Emerging Markets. China, Russia, and Brazil, are set for growth in the next 5 to 10 years years. They will outgrow older, established economies by around 20%. Spread 20% of your portfolio in this area.
- Going for Gold. The precious metal is certainly worth some investor consideration, but its already currently at a high value level. Investing in commodities may be a better option, as global population growth should fuel commodity growth. Spread 20%.
- Look into Land. They say they are not making land anymore, but land is always a safe long term investment option. Spread 30%
- Profit in property. This has fast become a precarious investment option and would be more so if interest rates where not at 2% and the banks weren’t so reluctant to foreclose and show their true value of their assets. Spread 20%
- Invest in the future. Seek genuine growth companies with long-term prospect. Life changes and produces new investment opportunities. 20 years ago who would have invested in Apple? Spread 10%
Governments’ desire to decrease your wealth is just the start of it. Follow my weekly CityOut Monaco finance column for more expert advice from inside the world of investment finance.
Greg was one of the UK’s top shares tipster in the 1980s and went on to become the leading financial forecaster for Russia and other Emerging Markets. He is also co-author of Store Wars, an insider’s guide to the global retail industry.