Capital Preservation

[Laura Ingalls]

It is possible you may end up disinheriting some of the most resilient future assets. If and when dollars and bonds become valueless, the few people with gold coins will be trying to use them to buy these assets.

I am not sure how useful GMO grain and combines and house’s heated with electric will be in a true shit it the fan scenario. I suspect my membership to seedsavers.org, wood stove, and my gardening spouse will get me further.

The other part of the story on one side is that is an existing LLC with four members of the oldest generation. The next generation has 8 people. The youngest generation 16 people. All but one of the oldest two generations have spouses. My prediction is that as time passes this arrangement is going to get very messy.

[prudentelo]

3. Confiscation. I don't worry about this one either. If you live in a country that is reasonably safe you are probably good. I also think protecting against this is too hard and costly.

Confiscation is biggest real risk once you are below 3.5% WR

Americans are used to not being expropriated but consider that PP holder in 1930 got 25% expropriated.

Inflation of bonds in gold standard era was also basically expropriation. Govt implicitly promised to not do that. Now govt explicitly promises to match inflation with TIPS - fool me once, twice ?

It's also a hard problem. Maybe just forget about it. Those tables with European etc. dreadful WRs all show the start date being 1937. Maybe if you retire in 1937 just be happy to be still alive in 1945.

[zbigi]

I'd be interested if anyone here invests in local businesses. Hairdressers, cafes, nail salons, massage services (not 'massage') or, well, anything really. Employ a manager or be a silent partner and let someone else do all the hard work and you cream off the profits. I have no idea of how easy this is.

Do they really require a lot of investment? I don't think the start up capital required there is large, and that's why they pop up (and shut down) all the time.
Inwesting in a chain "restaurant" such as McDonalds would make more sense, as they seem to have larger capital requirements. However, specifically in McD's case, they require the investor to operate the restaurant himself - I suspect they know from experience that a hired manager just doesn't guarantee doing a good enough job.

[chenda]

Do they really require a lot of investment?

Probably not tbh. I think many small hairdressers use self employed staff so I imagine if you own the business its more of a working for income business rather than passive profit making. Unless you develop some big branded chain like Toni and Guy which is worth hundreds of millions.

[jacob]

Do they really require a lot of investment? I don't think the start up capital required there is large, and that's why they pop up (and shut down) all the time.
Inwesting in a chain "restaurant" such as McDonalds would make more sense, as they seem to have larger capital requirements. However, specifically in McD's case, they require the investor to operate the restaurant himself - I suspect they know from experience that a hired manager just doesn't guarantee doing a good enough job.

There are sites that buy and sell businesses much like there are sites that sell airplanes, tanks, or art. Figure about 100kUSD to buy a bookstore. 300kUSD for a profitable laundromat, 500kUSD and up for an RV park. It's hardly passive though, more like the first one to show up and the last one to leave. The most passive way to invest in small businesses would be a BDC.

At one point I was talking with another EREmite about buying a laundromat. There is something to be said for local investments. However, a far easier and more conventional way would be real estate.

The most passive local investment I can think of is farmland, woodland, or hunting land. That still requires more effort than securities but at least it's local.

[Mister Imperceptible]

https://en.m.wikipedia.org/wiki/Possess ... of_the_law

[chenda]

The most passive way to invest in small businesses would be a BDC.

What is a BDC?

[jacob]

What is a BDC?

Business Development Company.
(high risk income oriented)

[WFJ]

Sooo..... after reading this thread, I've concluded that active investment is probably not for me. So what do to with my giant pile of ca$h? Is anyone pursuing a wealth preservation instead of wealth growth strategy?

Obv. would prefer just to treat my $$ like a giant savings account that has a 4% (or really any %) real return forever, but this seems overly ambitious? Willing to entertain strategies for this too.

I am in preservation mode and follow below
1. Max Series-I
2. Max employer match
3. Auto roll 3-12 month treasury notes.
4. Non-tech index funds, low Beta, higher dividend stocks/ETFs

Some have mentioned starting/buying businesses (hairdressers, laundromats, etc.) which appear to be low effort businesses, but in my experience are not. Work in the business for 3-6 months before ever buying one and find out the gremlins. A few months of making $10/hour can save you hundreds of thousands in a bad purchase. One question to always ask when buying "passive" small business is why is the owner selling if it's producing free cash flows and only requires a few hours of work? Are they tired of making easy money or something else? There are countless stories of "I make $5k a month from passive investment" on YT but 10-100X more "I was sued, cash flow problems prevent making rent payments, employees stole, landlord raised rent" stories that don't get as many YT views.

[chenda]

@jacob thanks, I'd not heared of them.

@WFJ Right. It might be more passive to get some cushy, wfh job with all the benefits of sick pay, holidays, pensions etc and a guaranteed pay cheque ever month. If you can get your work done in a few hours you can doss the rest of the day, without all the usual business worries.

Timber harvesting is an interesting passive(ish) investment. There is an old thread about it. It comes with tax advantages as well.

[steveo73]

Confiscation is biggest real risk once you are below 3.5% WR

I understand what you are stating but I have issues with WR's as well. I think in reality it depends. Just say you have a spending of 10k but you are rough riding it. Your spending could easily double or triple or go up even more.

My uncle was a wealthy blood specialist doctor and was paid a fortune especially when Aids was initially a big issue. He spent his end of life in a nursing home and the costs were huge. It's like millions.

If though your spending is reasonable and not based on too many freebies or whatever and you have a chunk in stock indexes you are correct.

Americans are used to not being expropriated but consider that PP holder in 1930 got 25% expropriated.

Inflation of bonds in gold standard era was also basically expropriation. Govt implicitly promised to not do that. Now govt explicitly promises to match inflation with TIPS - fool me once, twice ?

Yep. Things can fall apart. I suppose the problem with this is that if something that is government backed goes to pieces everything may also go to pieces.

It's also a hard problem. Maybe just forget about it. Those tables with European etc. dreadful WRs all show the start date being 1937. Maybe if you retire in 1937 just be happy to be still alive in 1945.

This is what I do. It's so hard to protect yourself against and if you are like me and don't have huge amounts of money I wonder if it's realistic to manage this issue.

I honestly think you'd need in the vicinity of 20 million plus to even consider this approach and even then I wonder if it's worth it.

Herein lies the problem with a lot of these discussions though. There is no perfectly safe approach to life because your finances don't protect you against lots of things that can happen. Divorce or cancer or heart disease etc are issues that can and do happen to lots of people.

[prudentelo]

https://en.m.wikipedia.org/wiki/Possess ... of_the_law

WWII era and before was notorious for people having the gold fillings leveraged out of their teeth

Meanwhile Estonia's securitized gold was returned by Bankof England 70 years after country ceased existed

https://en.wikipedia.org/wiki/Bank_of_Estonia#Reserves

Hard problem imo

[ertyu]

for everyone worrying, the gvt will not screw you over on the tips. the tips are denominated in dollars, and the us gvt prints dollars. you'll get your money back

[prudentelo]

believing the government wont screw you is not historically or geographically grounded.

tips is a wonderful product for the government offering inflation protection reliably backtested for full performance in a period in which inflation has only been low

[WFJ]

Inflation is confiscation, without the need for guns. Weapons to Ukraine, pork sent to zombie companies (INTC) to build chip factories comes from inflation. The US government doesn't have to send a tax collector to your doorstep and seize your property at the threat of violence, but simply reduces the value of your assets through inflation, taking your capital and reallocating to their friends. It is less violent in the short run compared to citizens of other countries who have experienced physical seizure, but just as devastating for normal citizens and results in the same carnage.

[classical_Liberal]

Americans are used to not being expropriated but consider that PP holder in 1930 got 25% expropriated.

This isn't really fair because they were paid for their gold. Just below capital market value (if there had been one at the time).

Which leads me to

Inflation is confiscation, without the need for guns.

A person holding gold in 1934, did receive a percentage of it's values from the government, and allowed for many exemptions. Worst case someone maybe lost a third of the 25%. However, at the time, deflation was rampant. So the USD given for gold held it's value.

I would argue that today's inflationary rate, in combination with multiple asset bubbles losing air, is harder on a PP holder than the 1930's.

This is not to say that confiscation is not an issue, just that this is a poor example. War (almost any in history) is better.

[Jean]

someone should invent a way to store value that isn't under governement control.

[prudentelo]

This isn't really fair because they were paid for their gold. Just below capital market value (if there had been one at the time).

OK. Can I fairly take your assets now, if I promise to pay for them at a below market rate? Even if you won't let me do it, will you agree it would be fair for me to do it...?


Reality is PP did not work in GD because of confiscation whereas 80/20 stock/bond "dangerous" portfolio with 3% WR did work in the great depression.


Was it predictable? Maybe, maybe not. I don't know. I didn't say I have soln to confiscation. Said it's a hard problem.

[chenda]

OK. Can I fairly take your assets now, if I promise to pay for them at a below market rate? Even if you won't let me do it, will you agree it would be fair for me to do it...?

He means not a fair comparison in the sense the confiscation/compulsory purchase of the gold did not represent a 25% loss of assets in a PP. It would have been substantially less. Whether it was fair to do so is another matter entirely. Although PP purists advocate keeping most of your gold abroad.

[prudentelo]

It's not an overnight 25% loss (unless you refused to deliver the gold and tried to wait for Gerald Ford to relegalize and died before he became president...)

But it is both a loss of value and more importantly makes PP unimplementable.

PP is a plan to hedge federal reserve policies that was illegal for most of the history of federal reserve