Where would you tell your grandmother to invest?

Where would you tell your grandmother to invest?

All too often we hear about investing for the long term and about how young investors have time to ride out the big swings in the market. That doesn’t help older investors, and it’s also a lazy way to avoid answering the question of where to invest in the short to medium term.

Consider the following:

  • Inflation has been cyclical for as long as it’s been measured. Yet global inflation is now close to its historic high levels.
  • Despite the historically high levels of inflation, bond yields in many countries are below the inflation rates. Meaning bonds are paying negative interest rates when adjusted for inflation. The same is true for savings accounts.
  • The risk premium for US corporate bonds is the lowest it has ever been. That means investors are earning almost nothing for the extra risk they are taking.
  • US equities are at historically high valuations. The only other time in recent history that equities were this expensive was in 1999.
  • In the past, when equities have started with valuations as high as present values, the returns over the following decade have amounted to less than 2 percent a year.

So, now what?

If investors sell their bonds or equities, they must park that money elsewhere. And cash, which pays next to no interest (actually, it usually pays negative interest), puts one at risk of inflation affecting returns. While everyone knows the equity market is expensive, they have nowhere to put that cash. Until they are forced to act, they are sitting tight.

Sooner or later markets must normalize. The Fed needs to reduce its balance sheet and corporations cannot keep delivering the returns needed to justify current valuations.

If equity markets normalize by correcting to the long term mean, they must correct by around 40%. If bond markets normalize, investors will have to take a loss on their capital or hold those bonds until maturity to earn a two percent taxable yield.

This brings us back to the original question. If equity markets correct by 40%, it may take at least five years to rise back to current levels. And if the next correction turns out as bad as the crash of 1929, it could take more than 20 years. Is that a ride your grandmother can afford to take?

Where do Digital Assets fit?

The lack of alternatives has been one of several factors driving the price of Bitcoin. However, cryptocurrencies are relatively young and like all new markets, they are extremely irrational and volatile. Bitcoin has already experienced a 50% drawdown this year, and it’s entirely plausible that it will experience an even bigger drawdown soon.

What’s the solution?

In the current environment, protecting capital should be the priority. And that’s especially true for investors who don’t have decades to ride out the volatility.

The only assets that can really protect investors’ capital when markets normalize are real assets. Real assets include precious metals, commodities, and real estate. They are known as real assets because they are tangible — unlike financial assets which are numbers on a screen. Equities, fiat currencies, bonds, and derivatives are financial assets, and their value is perceived rather than real. Market corrections, when they occur, bring financial assets back into line with real assets.

SilverToken

Silver may well be the best real asset in the current market environment. Real estate is illiquid, and values are not cheap at the moment.

Gold is generally a good choice but may under-perform silver in the medium term as capital moves from Gold to Cryptocurrencies. Silver doesn’t have that problem, as it has not been as popular as gold in the recent past.

Silver is also metal with real industrial use cases. Meaning that while it’s getting more expensive to mine, the current world inventory is also being depleted.

SilverTokens represent ownership of physical silver. The token’s silver is securely stored in 12 private vaults around the globe. Every SilverToken has a volatility base yield from a small transaction fee that goes into buying more silver each time a token is used — so the amount of silver each token represents increases over time.

SilverToken’s price tracks the value of silver since they represent physical silver ownership. It is therefore protected from the volatility of the market, while also offering a real store of value that is uncorrelated with financial asset markets.

PS: Say Hello to Grandma

img img
Buy