Today is Halloween here at Kung Fu Girl’s house. With a 3-year-old and a 5-year-old I can’t escape it (not that I want to— who doesn’t love a holiday where you can dress up as your favorite fantasy and eat as much candy as you like, or party all night depending on your age…or both!).
But Halloween wasn’t always so watered-down…in ancient Ireland the Celtics believed Samhain was a time when the division between the real world and the spirit world became very thin, when hostile supernatural forces were active and ghosts and spirits were free to wander as they wished.
This was a time when Druids (Celtic pagan priests) offered sacrifices to the gods to placate the evil spirits, and frightened villagers tried to appease these wandering spirits by offering them gifts of fruit and nuts (or today, candy).
You might not be afraid of evil wandering spirits from the underworld in your day-to-day life (or maybe you are…) but there is 1 financial “thing” you should be very afraid of, one that poses the greatest risk to your financial future, particularly if you live in a Western country…
Now, before you write me off as some “whack-o anti-government anarchist” (I’m not, at least not yet…), take a look at this list of threats to your money and see what YOU think. And be afraid (be very afraid).
But then get angry and KICK SOME FINANCIAL ASS!
1. Higher Taxes.
There is just no way around it. No matter how much you pay now, get ready for an ever-increasing bill in the future. With U.S. total debt at $54.5 TRILLION, there is no way in hell your taxes are going down. It’s fiscally impossible.
Even if you’re in the camp of “tax the rich!” and feel you’re not one of them so you don’t have to worry, let me tell you, your taxes will increase. Whether it’s the removal of the current home mortgage deduction, or a VAT tax, or increased sales taxes, or elimination of other popular deductions, or removal of the Bush Tax cuts, or whatever, your government simply CANNOT afford to make less revenue. Period.
And where does it get its revenue? That’s right…from YOUR POCKET.
So what can you do?
Well, for starters, just by knowing this you can strategize about how you’re going to maintain your standard of living in a higher-taxed world. Here are a few ideas:
- Study tax-advantaged investments, things the government wants you to invest in so badly that they give you a tax incentive to do so (Oil & Gas LP’s and certain forms of investment real estate, to name a few).
- Can you move to a lower-taxed state? Some states have no personal income tax at all…pretty tempting (especially since I live in California, the highest-taxed yet worst-performing state in our union). Others have no sales tax.
- Hire a
goodgreat tax accountant— you will need all the help you can get. I put this off for years, thinking I could “do it myself” cheaper, but it was a big mistake— a good tax accountant can save you thousands of dollars— far more than their fee.
- Can you start a side business? This can give you many tax advantages (as long as you play by the rules!).
- Do you plan to be in a higher or lower tax bracket when you retire? Your 401K/IRA money is taxed at the highest earned-income rate when you take it out years from now….if you’re planning to be in a lower tax bracket that’s not bad, but if you’re planning on being in the same or higher tax bracket (if you own businesses or other income-producing assets) then consider other options.
Bottom line…the tax man cometh, almost like an evil spirit, and unfortunately I don’t think candy will appease him.
2. Dollar Devaluation.
The government wants (and needs) to pay off its massive debt, currently at $14.9 TRILLION and counting) with cheaper dollars. They will continue to “print” more and more dollars to increase the money supply and lower the value of each dollar. This is terrific for the government, because it can pay off its massive debt with plenty of cheap dollars.
This sucks for you, however, because each of your dollars is now worth less, and the things you need to buy to keep alive (food, gas, etc.) cost MORE.
So what can you do?
The best thing you can do to protect against this is to diversify some of your holdings into hard assets. Own some physical gold and silver. Maybe buy some real estate or agriculture. The reason commodities are “booming” now is because of this fact— smart investors know the dollar (and other fiat currencies) are doomed. It’s a race to the bottom….it will not be straight down (the dollar is currently in favor as the mess in Europe continues to unfold), but it will be DOWN. The best way to protect yourself is via hard assets.
3. Low Interest Rates.
The government needs low interest rates because they cannot afford to service their massive debt at a higher rate. This is OK if you are a debtor, because money is very cheap now, but it sucks if you are a saver earning 1% on your savings (and that’s if you’re lucky!).
Rates cannot stay low forever as people wake up and begin to demand higher and higher interest rates to loan the government money, but with all eyes on Europe right now currently US Treasury yields (the interest rate the government has to pay you for your loan to them) are at all-time lows.
Today as I write this the 10-year bond has an interest rate of 2.21%, and the 30-year is at 3.24%. The U.S. is perceived as a “safe haven” (if only they knew…) but one day, that will change as we become ever-more buried under our debt and people demand much higher interest to buy our bonds.
For example, take a look at Greece…investors are demanding 24.08% for the ten-year Greek bond! You can buy a 10-year Italian government bond and earn 6.11%, or perhaps Portugal for 11.94%. Sounds pretty good…(of course, that’s if you can get it!)
So what can you do?
Well, I definitely don’t recommend buying Greek bonds, although the yield is very attractive….but the risk is downright suicidal, seeing as they just defaulted as recently as last week. Investors lost 50% of their money on Greek bonds last week (details are still sketchy and that’s an over-simplified view of the matter, but basically, they partially defaulted (took a “haircut”), and probably will default even more in the future).
So if Greek bonds are out, what can you do? Well, now might be a good time to buy some investment real estate, if you know what you’re doing and make sure to buy in an area with strong job growth and people moving there. (There are a few places like this, amazingly enough— some areas in America actually have growing job markets!). This isn’t for everyone, however, as real estate investing is pretty “hands on” and requires some decent business knowledge.
I’ve got to stop there because this is becoming an extremely long article (we’ll save asset seizures, possible IRA nationalization, economic and social turmoil, and more for another day…) but I’ll leave you with this:
There is no shortage of ways in which your government is going to try to take your money from you. The question for you is, as always, “so what are you going to do about it?” As Bruce Lee famously said,
“The end of man is action and not thought, though it be of the noblest.”
So be afraid (or not), but either way, go do something about it!
And have a GREAT Halloween!
To your financial success,
—Kung Fu Girl