Cash is king!
Any well-balanced investment portfolio includes a good bit of cash. And we get lots of questions about the “right” amount of cash to hold. But the exact proportion depends on each investor’s situation, so there’s no one-size-fits-all answer.
For our first entry in this week’s Friday mailbag edition, Dan Denning answers another popular question about cash…
Reader question: I read (and reread) the Aug. 2019 letter [The Bonner-Denning Letter] regarding recommended portfolio allocations and have questions for clarification.
Re: cash – the letter states, in part, “Go straight to the bottom in cash and gold…” In this context, does “cash” mean simply cash in an account, i.e., no investments other than interest or a CD-type instrument?
The letter also states that you “prefer gold and silver bullion coins (along with land) as the best way to own ‘tangible assets.’ But don’t forget gold and silver stocks.” This is clear, but how does it reconcile with the recommendation for cash (above) that mentions gold?
I’m not requesting specific investment allocations, but clarification as to how “cash” is defined in this context.
Thanks. Appreciate all the information and monthly letters!
– Donald G. (Legacy Research member)
Dan’s answer: By cash, I actually mean physical cash or bank deposits you can access quickly. In the past, I’ve recommended having three to six months of physical cash on hand, stored in a safe place. That’s in case the ATMs go down, or the banks aren’t open, or some personal emergency or natural disaster makes having cash indispensable. I also think it’s useful to carry around at least $100 (even if just a note) for the same reason (credit cards stolen, or payment systems go down).
Of course, holding a large portion of your net worth (30%) in physical cash is NOT what I mean. But I do mean bank deposits (preferably FDIC-insured). There’s no getting around the risk (no matter how likely) that your bank locks you out of your account (or the president declares a “bank holiday” in a national emergency). You assume those risks when you keep your money in the bank.
I also mean cash in more than one currency. I have bank accounts and cash in Australia and the U.K., mostly because I lived and worked in both places. This creates a tedious reporting requirement with the U.S. government, who demands to know where all your foreign bank accounts are and the maximum amount you have in them each year. But it’s worth doing because you diversify your cash allocation and you can benefit from currency moves (a declining dollar is what I expect).
In purely financial terms, the more liquid an asset is, the more “cash-like” it is. 90-day T-bills are liquid, and therefore what I’d call “near cash.” CDs and money market funds can fit that description too. But anything that is locked up or inaccessible until it matures (or that comes with a penalty for early withdrawal) is not cash or cash-like.
Also keep in mind that cash is an inherently defensive investment position. With nominal yields low and real yields negative, you’re giving up interest and capital gains on other investments or assets. Why would you do that? Because you think liquidity and physical possession of your wealth will matter more than any remaining upside (in stocks or bonds, for example).
Let’s move on to another important physical asset… In our next Q&A, industry insider E.B. Tucker answers an insightful question about gold…
Reader question: You are predicting gold to rise along with oil. With fuel being the biggest cost associated with gold mining, how do you see rising fuel costs impacting miners’ profits? Are some miners more exposed to rising fuel costs than others?
– William S. (Legacy Research member)
E.B.’s answer: William, this is an astute question. Back-of-the-envelope, we figure fuel is around a quarter of mining costs. Of course, that varies on each project. While we see a rise in oil, we don’t see it outpacing the rise in metals prices.
Mining runs on predictive modeling. At the bottom of a market cycle, where we are now, those models tend to be conservative. For the immediate term, we’re far more focused on the rising metals prices. Fuel will become a bigger factor further up the cycle.
Our next question is for tech expert Jeff Brown…
One faithful reader is worried about “the biggest problem that will face humanity.” And he’d like Jeff to chime in…
Reader question: Jeff, I enjoy your articles very much – and not just the recommendations, though they are profitable. However, in the recent article about quantum computers, you mentioned that even superbugs will have an antidote that will save lives.
BUT won’t the biggest problem that will face humanity before too long be the shortage of food? If the population of the world keeps increasing, people will be “standing” on an increasing amount of physical land – usually the best agricultural land. How will they be fed?
– Lester T. (Legacy Research member)
Jeff’s answer: Thanks for writing in, Lester. I’m glad to hear you’re enjoying the research. This is a very common question.
Last year, I profiled early stage company Root AI. This is a company spun out of MIT in 2018. It specializes in using AI and robotics to pick only produce – in this case, tomatoes – that is optimally ripe. In doing so, Root AI ensures no food is wasted by being harvested prematurely.
And we are creating improved crops by using genetic-editing technology to make them be more drought-resistant, have longer shelf lives, and produce higher yields.
What’s interesting is that we do not introduce foreign DNA into these crops. Scientists simply modify the crops’ DNA. Several rulings have concluded that crops edited this way are not GMOs (genetically modified organisms) because the scientists did not introduce foreign DNA.
Furthermore, one of the hottest technology trends in agriculture right now is “vertical farming.” The movement aims to move farms and fields close to urban centers – and, in many cases, locate them in the cities.
We can imagine highly automated, robotics-enabled food “manufacturing” plants that grow healthy foods for urban areas at even cheaper prices.
We’re going to see more of this in the next couple of years. And there is a side benefit, too. These types of agricultural facilities consume less water and energy than traditional farming per unit of agricultural output.
Perhaps surprisingly, in 2018, vertical farming was already a $2.23 billion market. And by 2026, it will grow to nearly $13 billion.
While we will see these kinds of vertical farms in the U.S., the largest markets for this agricultural technology will be in Asia, where the population densities are the highest.
Jeff says agricultural technology (or “agtech”) like this is going to be a big topic in 2020. And he already wrote more about it in yesterday’s edition of The Bleeding Edge.
Catch up here if you missed it.
Now, for our last Q&A of the week… an important question about cryptos for our world-renowned expert, Teeka Tiwari.
Reader question: Hello Teeka. Could you perhaps give the reason why I would want to store my cryptocurrency in a bank?
I can see no reason for me to store my crypto in a bank.
– Chris H. (Legacy Research member)
Teeka’s answer: A wallet is where you should store your cryptos.
Now, there are two types of wallets: digital and hardware. Digital wallets are for online use. Hardware wallets are external devices (many look like flash drives).
And moving your cryptos to a wallet is the first step every token-holder should take. If you don’t, the results could be disastrous.
Earlier this year, some wonderful, hard-working folks – including some subscribers of mine – lost millions of dollars by keeping their crypto funds on the now-defunct Canadian exchange QuadrigaCX.
That’s why you should always self-custody your crypto funds when possible. And that’s the beauty about cryptocurrency: You can control your digital assets. You’re like your own bank.
We all know Teeka is the go-to guy when it comes to crypto investing, but there’s something else you may not know…
Teeka is also an expert in pre-IPO investing. That’s buying shares of companies before they go public. And it’s something that – up until recently – has been reserved exclusively for elite investors.
But Teeka found a way to help average folks like you and me get access to these sweetheart deals… and make a boatload of money in the process.
I can’t explain it nearly as well as Teeka, so I urge you to check out his Freedom 2020 presentation. It aired two nights ago, and it’s all about an opportunity so big it could fund a retirement nest egg in a single day.
Teeka’s next pre-IPO recommendation comes out on January 13… So don’t miss your chance to watch the replay before we take it down.
Have a nice weekend.
Regards,
 |
James Wells
Director
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