Storage of wealth in your home
I recently attended a home inspector marketing event where the inspector-attendees were encouraged to reveal how much their inspection companies made in gross revenue during the previous 12 months. The ones that reached a certain level get to go up on stage and the audience claps for them. It's really weird. Anyway, gross revenue is important. I'm guilty of emphasizing this importance myself, and even authored a free book titled "Stacks: A Home Inspector's Guide to Increasing Gross Revenue." But increasing gross revenue is merely a way to help increase net revenue. And net revenue is merely a way to help increase your net worth or wealth. Wealth, – not gross revenue – is the ultimate goal of being in business. And wealth has to be stored. The mistake I see many home inspectors making is that they are allowing their measurement of gross revenue, which is made in dollars, trick them into thinking dollars are a store of wealth. It's not. Dollars are digital wealth (zeros and ones). And until you cash in those dollars for something you can touch, it's just paper. Or, worse, digital wealth. Digital Wealth and Counterparty Risk Digital wealth is wealth on paper or online. Examples of digital wealth include bank accounts, stocks, bonds, 401Ks and ETFs. Digital wealth preservation is dependent on third parties fulfilling their obligations. Counterparty risk is the possibility that some third party you do business with will not live up to its obligations. When you have money in a bank... you actually don’t. You’ve loaned the bank your money. Your bank statement isn’t an accounting of how much money you have, but, rather, how much money you’ve loaned your bank. The bank is obligated to repay you your money upon request, and perhaps pay you a little interest for allowing them to borrow it. You are relying on your bank to fulfill its obligations and the risk of them failing to do so is the counterparty risk. You can’t touch your money at the bank, so, therefore, it is digital wealth and exposed to this counterparty risk. Countering Counterparty Risk with Diversification Diversification is an effective way to reduce counterparty risk. Spread out your deposits and investments over multiple banks, institutions, and locations. This will protect you from most disasters short of a national financial meltdown. Now, I'm not a religious person (I don't go to church), but I continue to discover excellent financial tips in the Bible, so this article contains some scripture. With regard to diversification, the Bible gives us the following advice:
“But divide your investments among seven or eight places, for you do not know what risks might lie ahead.” – Ecclesiastes 11:2
Now, this doesn't mean to invest in seven or eight stocks in the stock market. That's not diversification. That's putting all your eggs in one basket, one fraught with counterparty risk. This leads us to the very best way to protect your wealth... counterparty risk-free wealth storage. For centuries, the rich have stored their wealth in hard assets: farmland, railroads, castles, fine art, and precious metals. You can, too. Here are the hard assets you should consider, and the ones to avoid. Cash Holding cash (actual $100 bills) removes the counterparty risk you’re exposed to when you keep money in a bank and have to rely on that bank. That much is true. But dollars are notes. Notes are promises to pay. In the case of U.S. dollars, the Federal Reserve issues these notes and if you have some in your wallet, you have a promise from the Federal Reserve to pay you for those notes. Guess what they pay you with – other notes. The U.S. dollar is no longer backed by gold. Today's dollar is simply a written promise that entitles you to exchange it for other promises. You have the right to exchange two $10 bills for a $20 bill, or a $100 bill for ten $10 dollar bills, or whatever. They are only paper notes, as is all fiat currency. The U.S. dollar is actually referred to as a "note" on the front of the dollar itself, twice. Can you spot them both? U.S. dollars are notes. Not only are dollars just paper promises (notes), they lose purchasing power over time. $100 bills stuffed under your mattress lose purchasing power every minute. In my lifetime (I was born in 1962), everything has gone up in price about tenfold. Here are the costs of a few common items sold in 1962:
First-class postage was 4 cents.
A Coke was 10 cents.
A gallon of gas was 31 cents.
Tennis shoes were $5.
A new car was $2,500.
Nowadays, everything costs about ten times as much as it did in 1962. That means that, since I was born, the dollar has lost 90% of its purchasing power. Read my article about Motel 6. Since 1919, everything has almost gone up a hundredfold. For example, a loaf of bread in 1919 cost 4 cents. That means that in the past 100 years, the U.S. dollar has lost 99% of its purchasing power... and, yes, it will ultimately lose all of it and go to zero. All fiat currency in human history eventually goes to zero.
“I have seen a grievous evil under the sun: wealth hoarded to the harm of its owners, or wealth lost through some misfortune, so that when they have children there is nothing left for them to inherit.” – Ecclesiastes 5:13-14
In summary: saving dollars is unwise. That said, there are are a few reasons to save some actual green cash:
If you think your bank account may be frozen or confiscated by a creditor or the IRS.
If you think you might need cash to purchase something from someone who refuses to accept a check or credit card. Heavy equipment auctioneers and precious metal/coin dealers often demand cash.
If you don’t want a record or paper trail of a transaction.
If you think you might get arrested and will need to make bail.
If you are planning a trip. It's good to bring some cash with you when you travel, since you never know when there might be a problem with your credit card.
Now, let’s move on to harder assets: Antiques An antique is an object that has a high value because of its considerable age. The big advantage of using antiques as a store of wealth is their growing rarity. Over time, historic collectibles become more and more scarce, as they are lost or damaged. As the rarity of something increases, so does its value. First battery-powered flashlight from 1894, on display at the Inspector Museum Another advantage of antiques is that they get older every day. As their age increases, so does their value. Eighteenth-century antiques are becoming the new 17th-century antiques. And even items from the 1970s are now being sold as antiques or vintage collectibles. Also, most antiques are considered to be wasting or depreciable assets. Assets have a useful life usually based on the period of time that they have productive capacity. Over time, antiques depreciate, eventually having little or no residual value. During the period of depreciation, the antique is called a "wasting asset" and is not subject to inheritance or capital gains tax. And, finally, antiques can be bought, kept, and sold anonymously. Steve’s Tips Regarding Antiques:
Only buy antiques that are both authentic (not reconditioned) and undamaged.
Many investment-grade antiques are made, either partially or completely, from precious metals. Therefore, an increase in the price of gold and silver will put additional upward pressure on the value of antiques that include these precious metals. Consider buying such antiques.
In the future, people will accent their modern interiors with small antiques. So, choose antiques that don’t take up a lot of room. If it can't fit through a standard doorway, who would realistically ever buy it from you? Smaller is better, and also less expensive to store.
Don’t cater to the ultra-rich by storing million-dollar Ming vases. Buy antiques that are in the upper-middle range of the market where most future antique buyers will be. Antiques in the $250-to-$15,000 range are in the sweet spot.
You may want to enjoy your antiques in your home while you are storing them, using each piece as it was designed to be used. A future buyer will likely want to do similarly. So, curate a functional collection.
Guns There are very few products you can buy today that will stay in working order for decades to come. Well-made guns can last almost forever when cared for properly, and they rarely depreciate. A rifle or pistol is an heirloom that can be passed on from generation to generation. Anti-gun legislation often has the effect of increasing the value of the guns being regulated or banned. When there was talk of banning rifles like AR-15s and AK-47s, prices quadrupled and gun stores' inventories were depleted almost overnight. There is also nearly always a spike in gun sales after mass shootings for two reasons. Law-abiding citizens fear that government regulation will become stricter. Secondly, people buy guns for protection whenever a public shooting takes place. Is it ethical to invest in guns? Billionaire Warren Buffett once answered that question by explaining that his personal political views should not enter into the investment choices he makes for Berkshire Hathaway, the $500 billion conglomerate he leads.
“I don’t believe in imposing my views on 370,000 employees and a million shareholders. I’m not their nanny on that.” – Warren Buffet
Even without Mr. Buffet’s blessing, with some 100 million unarmed people having been slaughtered by tyrants in the last century, I believe that guns are the ultimate social-responsibility purchase. Antique and unfired guns command higher prices. People own guns for different reasons. Guns are owned by:
Second Amendment activists,
people concerned with self-protection,
gun sport enthusiasts,
The one big disadvantage: Before you pull the trigger on investing in guns, remember that guns are dangerous if left unsecured in homes with children or with people who are suicidal. Steve’s Tips Regarding Guns:
Obviously, clean your guns before storing.
Keep guns safely locked up.
Try to maintain a steady relative humidity in the room.
Use gloves when handling or showing the guns to others.
Lots and Raw Land Raw land is land in its natural state, with few or no man-made improvements. What makes something valuable, in part, is its rarity, and raw land is becoming more and more scarce every day. There simply is a limited quantity available on Earth, and they aren’t making any more of it. Land investors have very few competitors, unlike residential homes. You can often buy raw land at a discount if the seller wants a quick sale. Do your homework (due diligence):
How much are the property taxes? How much will they be after you buy the land?
What are the zoning and permitted uses?
Are accessory buildings permitted? Often, they are not unless there is already a primary residence on the property.
What are the building height restrictions?
Are there any covenants (restrictions)?
What is the topography? Is it in a floodplain or does it contain a wetland?
What utilities are available? Is there public water, sewer, gas, and/or electrical? What is the water tap fee?
Are there any easements?
Will you have public or deeded access to the property?
Are there any contaminants or environmental concerns? Was there ever any industrial pollution or contamination on or near the property?
Is it susceptible to wildfires?
What is the soil type and what can it be used for? Is there topsoil?
Does it come with mineral rights?
Is or was there mining underneath?
Look for ways to quickly generate income with the land. Leasing it to a nearby farmer or a hunter, or for self-storage, parking or billboards can provide some revenue to reduce carrying costs and “babysit” the land while you hold it.
With vacant land, you don’t need to know or do anything. There's no construction, no renovations, no expertise, no maintenance.
In 2018, my wife bought a small organic farm. She also bought the small farm next to it, and the lot next to that one. Why? By buying the properties next door, she protected her view of the mountains. When she ran public utility mains to one, she was able to provide public utilities to the others at little additional cost. She can share and move equipment easily between parcels. When she is working on one, she can keep an eye on the other. And, finally, she uses synergy to assure her property values aren't harmed by her neighbors. She is her own neighbor. Steve's Tips Regarding Raw Land:
Talk to the neighboring property owners about the land.
Look for elderly farmers who are retiring.
View mature hardwood trees as a valuable asset.
Look at its proximity to other desirable locations, such as schools and shopping.
Purchase in the path of growth.
Buy at the bottom of the market, during a recession, and then sell in the recovery.
Avoid buying any property governed by a homeowners association (HOA).
Fine Art Don’t do it. Art has no intrinsic value. It cannot be regularly marked up to some market price. There is no way of knowing what it is worth at any given moment. Buying art is gambling in an illiquid realm dominated by a handful of players who all likely know more than you do. Abstract painting of a house with defects, on display at the Inspector Museum Groceries and Staples
The cost of food increases at the same rate as inflation, so there is no disadvantage to storing food and supplies in case of an emergency. A home grocery store will be to you and your family as the ark was to Noah and his family. Steve and his stored potable water Here are some supplies you should consider storing:
Military MREs (Meals Ready to Eat)
Wheat (hard red)
Rice (white rice stores longer than brown, but has fewer nutrients)
Corn (whole kernel)
Honey (liquid/pure stores the longest)
Canned sardines, tuna and salmon
Salt (large supply)
And if you are also storing for emergency purposes, don’t forget large quantities of water. I prefer water in glass bottles. I also have four 55-gallon drums of chlorine-treated water stored... just in case.
“Precious treasure and oil are in a wise man's dwelling.” – Proverbs 21:20
Steve’s Tips Regarding Food Storage:
Buy in bulk to save as much as 80%. Can you buy stocks at an 80% discount?
Store your food in a cool, dry place away from sunlight. A basement is ideal.
Store what you eat and eat what you store.
Rotate your stock.
Diamonds Diamonds are a depreciating asset masquerading as an investment. When you buy a diamond, you buy it at retail, which is at a 100% to 400% markup! There are 4 trillion tons of diamonds in the world... 4 trillion tons! They aren’t rare and they don’t appreciate. In short, diamonds are bull crap. Fruit Trees Fruit trees are an investment that requires an upfront cost and then some maintenance in the investment each year, but the maintenance costs generally go down quickly over time. A decent 3-year old tree will cost you about $150. You'll need a pollinator, and so there is a minimum investment of two trees. During the first year, your trees will also need water to get established. So your initial investment including your labor and water will be around $600. After a couple years, your two fruit trees will be producing 150 pounds of fruit per year. Organic fruit costs about $1.50 per pound. So two fruit trees producing $225 worth of fruit a year will generate a 37% return on your initial investment. Jewelry Forget jewelry with one exception: jewelry where the bulk of the value of the jewelry is in the gold or silver used to make it. Then, you are merely storing gold in the form of jewelry, which is fine. Certified Master Inspector® Ring Classic Cars Storing classic cars as an investment usually requires three things (at a minimum):
a love for the model (nostalgia);
the mechanical skills to maintain the car; and
the room to store the car indoors.
I don’t believe classic cars are a good investment any longer because millennials don’t care much about cars. They grew up using Uber. I've asked many young people who work for me to guess when my 1929 Ford Model A pickup truck was manufactured. The most-often response I get is "The 1950s?" Also, older cars are horrible to drive. They are small, uncomfortable, and handle worse than the cheapest new car. Steve’s Tips Regarding Classic Cars: If you are going to invest in a classic car, store it right. Here are some storage tips:
Give the vehicle a good wash and wax. Putting on and removing a vehicle cover will lead to unwanted scratches if the car is dirty.
Change the oil and filter.
Fill the antifreeze.
Fill the tires with air.
Fill the fuel tank (preferably with premium) and add fuel stabilizer. The fuller the tank, the less room there will be for air, which carries moisture that can lead to fuel contamination and rust.
Run the vehicle to move the fuel stabilizer into the carburetor.
Put baking soda boxes in the interior and trunk.
To keep out insects and vermin, put a plastic bag over the air cleaner/air inlet and exhaust pipe(s), or cover them with aluminum foil.
Place mothballs in the tailpipe and around the outside of the car.
Spray dry Teflon lube or silicone spray on all the weatherstripping to keep it from bonding to the doors.
Close all the windows and doors.
Select a dry, dark location with concrete flooring. If you must store your car on a dirt floor, place a plastic barrier under the vehicle, and place carpet pieces or plywood under the tires.
Unhook the battery and store it separately – preferably, where it will not freeze.
Place the vehicle on jack stands. This step stops the tires from getting flat spots and adds longevity to the suspension.
Cover the vehicle with a breathable fabric (or just a cotton sheet) that doesn’t trap moisture.
Sports and Entertainment Memorabilia Unless you are in the sports memorabilia business, it’s a very tough market to navigate, especially with dealers rigging auctions, bidding up their own items, tampering with collectibles, and forging signatures. Fraud is so common in the sports and entertainment memorabilia world that the entire industry has become a joke. And even if you could buy something authentic, like the collector who paid $3 million in 1999 for the home run ball that Mark McGwire hit, appreciation isn’t guaranteed. Now that McGwire admitted to using steroids, you'd be lucky to sell that ball for $100,000. Stay away from memorabilia as an investment strategy. Steve's Tip for Investing in Memorabilia: If you are procuring the autograph in person, take a picture of the celebrity signing the item with you in the background of the picture. This will provide provenance (evidence that the autograph is authentic). My friend Joe Theismann, a Super Bowl champion quarterback, was gracious enough to stop by the InterNACHI® House of Horrors® Home Inspector Training Facility and autograph footballs for the entire staff. Stamps Unless you are an expert in this area, I would stay away from collectible and even investment-grade stamps. There is just too much to know. Furthermore, stamp collecting is a hobby of past generations. Steve’s Tip Regarding Stamps The only investing in stamps that I recommend is buying U.S. Postal Service Forever Stamps just before they go up in price. For example, in January 2019, Forever Stamps went up 10% in one day, and they announced the day ahead of time. On a side note, if you've ever received mail from the Master Inspector Certification Board (and we send out tens of thousands of pieces of mail a year), you'll note that we used actual stamps (not metered postage). We do this because people open letters that are stamped with real stamps. Wine and Whiskey I don't recommend investing in wine for the following reasons:
It requires some expertise.
You have to store the wine correctly.
You will probably want to insure it.
Wine takes up a lot of space.
Wine bottles break.
Some wine spoils.
Your investment might suffer loss from use (drinking it).
You’ll likely have to wait a decade to see significant appreciation.
Selling the wine at auction takes a lot of work and the auction house charges fees. Wine is liquid without liquidity.
When I was a teenager, I had a friend from a wealthy family. I was staying overnight at his house one night as his father prepared to go on a business trip, leaving us alone. His father's last words were, "Boys, stay out of my wine cellar. Most of the wines are inexpensive, but there is one bottle down there that's worth $25,000." After he left, and being all alone in the house, we just couldn't help ourselves. We headed to the wine cellar. Surely we could pick out some cheap bottle of wine that my friend's Dad would never miss. We chose the dustiest old bottle out of about 300 bottles of wine and, that night, we drank it all. Unfortunately, that was the lone, ultra-expensive bottle of wine. I do recommend investing in whiskey for the following reasons:
It’s not possible for whiskey to get too old. It may not be getting any better after a certain number of years, but it doesn’t get worse. The minimums are ten years for bourbon, and 20 years for scotch.
Whiskey has an almost indefinite shelf life. As long as the bottle is kept out of direct sunlight, the Scotch Whisky will neither improve nor deteriorate, even if it is opened.
And, in a survival situation, whiskey can be used as a combustible, a solvent, and a disinfectant.
Drinking a little whiskey each day has several health benefits. Steve's Tip Regarding Whiskey Store bottles upright, not on their side (like wine) - to protect the cork from the high-strength alcohol.
Silver and Gold I saved the best for last. In my opinion, the best store of wealth are silver and gold, and here is why:
Markup You pay a premium when you buy silver or gold, but it is relatively small compared to anything else you buy in life. Costco, at 15%, has the lowest markups of any retail store in America. Their margin is often described as “razor thin.” Silver and gold have premiums of half of that (around 7%). If you buy right and in any serious quantity, you can often get that premium down under 3%.
Storage Both are compact (albeit heavy) stores of value. Gold, however, is worth significantly more per ounce than silver and it is also the denser of the two metals, making the volume of gold worth far more than an equal volume of silver.
Indestructibility Silver and gold – especially gold – are nearly indestructible and will last thousands of years. If you are storing gold in your home and your home burns to the ground, your gold melts into gold.
Difficult to Counterfeit Gold in particular is difficult to counterfeit because it is one of the heaviest metals. Fake bars can be detected by simply measuring their specific gravity.
Transportability It’s easier to transport gold than silver, but both can be moved and shipped easily. Silver and gold coins and bars are regularly shipped when bought and sold.
Fungibility Silver and gold are considered 100% fungible in that one ounce of silver or gold anywhere in the world is worth what every other ounce is worth.
Market Price It’s a simple matter to look up the value of any silver or gold coin or bar without a professional appraiser. Prices are always available online in real time.
Divisibility Both silver and gold are easily divisible. You can buy and sell gold dust or gold bars. Both are used in coin money and come in multiple denominations.
Used in Jewelry Both silver and gold are used in making jewelry.
Stored by Central Banks Around the World Central banks don't store $100 bills or diamonds in their vaults. They store gold.
Gold is Tier 1 Capital Tier 1 capital is the most perfect form of a bank's capital. It's part of the reliable money the bank has stored to keep it functioning. Gold is considered to be Tier 1 capital.
Used in Industry Both silver and gold are used in industry. Silver is a good electrical conductor and has the highest thermal conductivity of any metal. Silver is used to make solder, silverware, solar panels, media storage, and batteries. Gold is used in dentistry, cell phones, computers, medicine, architecture, and satellites. Gold is so malleable that NASA covers the visors of their astronaut's helmets with a see-through layer of it to fend off dangerous effects of solar radiation.
Liquidity Both gold and silver are extremely liquid assets. When you are ready to unload some metal, you can sell it at virtually any pawn shop, coin store, jewelry shop, on eBay, or to individuals. The gold and silver markets are about as liquid as it gets, so you never have to worry about getting stuck with either.
Scarcity Silver and gold are scarce. They are both hard to find and getting harder to find and more expensive to mine every day. All the gold ever mined in all of human history could fill only about two Olympic-size swimming pools. There is even less silver than gold.
History For thousands of years, silver and gold have been used for monetary exchange. All civilized nations recognize gold as the number-one standard of value. Central banks around the world don’t store diamonds... they store gold. As Chief Global Strategist for Euro-Pacific Capitol said:
"Gold has worked for thousands of years, but now, with the Internet, it works even better" – Peter Schiff
Anonymity You can buy and sell silver and gold for cash. There is no state, province, or country that requires its citizens to report their silver or gold holdings.
Beauty Silver and gold – especially gold – are unbelievably beautiful.
What to buy? My personal advice for investing in silver is to buy new U.S. or Canadian 1-ounce rounds (coins) or bars up to 100 ounces. My personal advice for investing in gold is to buy pre-1933 U.S. coins in any denomination. This provides a smidgen of numismatic value and some additional demand simply because they are old, while still maintaining their minimum melt value.
My Final Tip Store wealth in good times so you have something to help you get through lean times, such as the coming collapse of the dollar, for retirement, or for when your body simply prohibits you from doing the physical work of being a home inspector. In the following passage from Genesis, Joseph advises the Pharaoh to do similarly for his people:
“Let Pharaoh appoint commissioners over the land to take a fifth of the harvest of Egypt during the seven years of abundance. They should collect all the food of these good years that are coming and store up the grain under the authority of Pharaoh, to be kept in the cities for food. This food should be held in reserve for the country, to be used during the seven years of famine that will come upon Egypt, so that the country may not be ruined by the famine.” – Genesis 41:34-36
The U.S. government ran up a $26 trillion debt. They wasted $7 trillion waging the longest two wars in U.S. history on the wrong two countries. We must never forget... never forget that not a single 9-11 hijacker, mastermind, or financier was Afghan or Iraqi. Not one. Our government has nothing saved for us. Therefore, each of us individually must store our own grain. ###