General Question

Adramus's avatar

How to protect your wealth in a deflationary environment?

Asked by Adramus (13 points ) August 17th, 2010

Despite the fiscal stimulus and expansion of money supply, the world economies (excluding emerging markets) seem not able to recover with sustainable growth. One reason may be that the reduction of the money multiplier caused by the financial crisis. Banks and Brokers are deleveraging under increased regulatory pressure and are not securitizing debt and distributing risk with complex financial instruments. Furthermore, the public is not willing to move out of liquidity. If we have deflation coupled with depression (like 1930), how can one protect one’s wealth?

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24 Answers

frdelrosario's avatar

Stash it in a coffee can and bury the can in the backyard.

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Tobotron's avatar

Its a myth that financial markets are the bee all and end all of a developed economy, but we rest too much reliance on them and so does government. The reason the developing countries are doing so well is there manufacturing sector drives exports, and ‘we’ create, well…not a lot!

Britain for example has always been in the shits, no reason why this should be other than what do we do?! War a lot, massive financial sectors, huge public sectors, do we make cars, not really, do we make tv’s and consumer goods, certainly not! That’s why were poor, were built on the reputation of what we used to be, which was the scientific, industrial, and banking centre of the world! Thats why Britain had the biggest Empire in the history of mankind.

Until the western economies are key word your gonna be hearing alot next 5 yrs ‘re-balanced’ I would invest all my money in new markets.

Africa is a hugely expanding telecoms market, China obviously a good investment, Coffee especially Cocoa are huge trading markets that will never go away.

Pick your developing markets wisely (Africa esp) and you can make a lot of money if you have the money to invest, (contacts in investment banking hence the tips ;) )

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Austinlad's avatar

Despite all the ways I’ve been advised to protect my money, I’m staying as liquid as possible. The 401K I counted on for retirement has been decimated, the stock market is a dissaster, and savings accounts and other savings instruments are paying virtually nothing. I like my mattress.

Tobotron's avatar

@Austinlad without a doubt for most of us its not about making money, more about not making a loss on what we do have…given the huge inflation that were beginning to feel come into play not to mention the insrance risk your money’s still better off in the bank…we’ve already seen proof that government will never allow any bank to fail…and we always knew stocks and shares were a gamble that’s why you had to be at least 18 to buy them!

zophu's avatar

Invest in the physical objects, skills and philosophies that are needed to survive with very little or no wealth. Then, you and your family wont worry so much about losing it, and be more equipped to get it back if it is lost.

That’s what I think to myself, anyway, when I worry about some super-depression going down. Makes me feel better, even if it is naive.

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Adramus's avatar

…since western societies are already burdend with debt, deflation coupled with a depression will make it difficult to keep a job, earn income or cash flow to pay interest on the debt. I am not sure if cash in bank is realy the answer, especially if systemic risks resurface and governments can not bail out the banks again (moral hazard and lack of public support). Will paper money retain it value?

cazzie's avatar

Are you for real with all that gobletey gook talk? Wow…. re-prioritise… The real words now are… INTRINSIC value… and not money for nothing. If you’ve invested in overinflated stock… ‘Boo bloody hoo’..... suck it up and move on. Learn to read a balance sheet and an Annual report from a company you are investing in.

Grow your money by doing real grass works good for the world. Learn what money means.

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theglennnn's avatar

buy gold. don’t invest in gold, but buy physical gold. it will always be worth something, unlike money.

Hobosnake's avatar

Well, my AP Euro history teacher was kind of crazy, but I still don’t think I can argue with his logic of buying gold. If the <insert currency name here> is about to plummet and you know it, put your money in something that won’t lose its value.

And dang it theglennnn, you just finished writing that just as I was doing it, but you couldn’t be more right-on.

Tobotron's avatar

did you know the vaults of the world trade centres were used to hold ALOT of gold! I mean ALOT! wonder were all that went?!

Adramus's avatar

Gold seems the answer for all problems these days: High inflation or as an alternative currency in deflation. The problem is that the known inventory of gold and future supply is only a small fraction of the paper money supply and liquidity. In other words gold would be come a very crowded trade (which we are already seeing now). The premium on gold is vulnerable and Gold has also downside risk.

Hobosnake's avatar

@Adramus The thing is, there’s a reason for all the “Cash 4 Gold” commercials on TV. If you have any extra wealth, I’d say tie it up in gold until the economy cools down (or topples over and a new one is instated). Whatever cash you need, keep (you can’t exactly go to burger king and trade a gold nugget for an order of chicken nuggets, regardless of its value), but the real profiteers are going to be the buyers if the economy goes to shambles.

TexasDude's avatar

Intrinsic value is right.

Invest in precious metals, tools, skills, education, and things people may need.

stranger_in_a_strange_land's avatar

Aside from gold bullion in Swiss and Singaporean vaults, my capital is in farm land and stock in companies that build useful durable products. Mostly green energy technology; photovoltaics, wind turbines, geothermal development, small hydro power hardware. Only one of my investments in this area has done poorly and that was due to the entire economy of the country the company was located in going sour (Zimbabwe); even that company has moved most of their operation to South Africa and is now recovering. I’m also allergic to debt no matter what the condition of the economy.

lostgirl12's avatar

I say invest your money in the upcoming markets such as India, China, Brazil, Russia, etc. They will help you make money faster.. All the western countries economies are going down… you will be smart to put your money into any of the eastern countries…

Tobotron's avatar

@lostgirl12 ohh no not Russia, seriously! I used to work there and no one keeps their money in a bank, no one trusts the economy, no one knows what the future might hold there…all the wealth is held up pretty much only in the major cities…Russia esp Siberia however is a great place to start a business, they have money but literally no where to spend it!

stranger_in_a_strange_land's avatar

I stay away from investments in PRC. They don’t have a free market, transparency or investment regulations that all must follow. Many of the so-called private companies are actually state controlled. You might be able to make handsome profits on paper, but can you withdraw your money at will, especially if the Chinese government decides that too many foreign investors are pulling out? China presents a picture of stability to the world, they control the media, most social unrest goes unreported. I don’t want to be in the situation that my grandfather was in 90 years ago, holding worthless Russian securities.

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