Asset protection is not a new concept and strategy. Generally, asset protection is a concept of guarding the wealth through multiple strategies. It’s a part of financial planning that’s suitable for businesses and individuals. Most people are focused on using the asset protection to protect their assets from creditors but this is only one side of the coin.
Every day you use euros, dollar, or other currency. You have it in your wallet, bank account but every year you lose over 2% of their value due to inflation. It means that the money you have are worth less and less each year. Generally speaking, the whole system is based on people’s trust in the system and on governments making good policies. It’s because most currencies aren’t following a gold standard which is now a thing of the past.
But what happen when the trust is in trouble? Let’s see. 2020 was a chaotic year due to the COVID-19 pandemic and lockdowns in most countries. Some countries, for example Poland, introduced not too good monetary policies. As a result, the currencies of these countries weakened significantly. It’s no secret that this leads to consequences and issues.
There’s nothing wrong in having cash because it gives you the flexibility. So, you can go shopping, invest in your skills and business. It’s flexible and comfortable to have some cash. But it’s also important to realise that in the current economic environment some actions are needed. These actions are asset protection and diversification. And yes, it means you shouldn’t have your whole net worth in cash. What’s more, it’s better to not have a majority of the net worth in cash.
Cryptocurrencies are on the news every day and many entities are pumping much money in the market. So, we can see all-time highs of the cryptocurrency market. Many people believe that investing in cryptocurrency markets, e.g., Bitcoin and Ethereum, is a smart strategy. Some people want bigger return of investment (ROI), while other thinks that they can break the bank. But instead of discussing whether to expect or not hight ROI, we will talk about the most important fact about cryptocurrencies. Cryptocurrency is a store of value.
Bitcoin’s performance against inflation is at high level. For people who invested in BTC 10 years ago, return reached around 200%. For over a decade. If we compare this to gold where returns have been around 18%, we see that Bitcoin performed well.
We can treat cryptocurrencies such as Bitcoin as a store of value, some type of hedging with true potential. But personally, I’m not recommending putting all money into the crypto market. Of course, there are people who would be ready to criticize my words and say it’s wrong to write something like this. I fully respect that. I can add that I advised many people on investing in cryptocurrency market: from cryptocurrencies to crypto projects and startups – without financial lost. But I’ll never recommend anyone to invest the entire net worth in cryptocurrencies. Why? Because asset protection is about diversification, not putting everything you have in one store of value.
Precious metals such as gold and silver
Gold and silver are examples of the second store of value which are precious metals – there are not a relic or something that isn’t worth considering. Precious metals are good store of value and should be a part of asset protection strategies. There are good for hedging, so you can use them for diversification of your net worth. For example, gold is inflation-resistant option – and this means it’s a store of value.
As for silver, it’s also a good option for hedging and protecting assets. I think it’s still underpriced but still worth to consider it for diversification and asset protection. Combine both gold and silver, and you will strengthen your asset protection strategy.
It’s worth to add that precious metals should be stored in country that is friendly, stable, neutral and with good logistics. There are few countries that meets these criteria. Among these countries are Austria and New Zealand.
For precious metals as a store of value the same rule as for cryptocurrency applies. Don’t put your whole net worth. You can put from 2% to 20% of your net worth in precious metals like many high-net-worth individuals.
Foreign investments – emerging markets
There is another store of value which is good option for open-minded people: foreign investments. Looking for store of values only in locations you know is not bad but it’s worth to think about other markets. It’s comfortable to invest in the area you live but many opportunities can be found across the world.
Frontier or emerging markets – which in most cases are totally uncorrelated with the currency you are using or with the stock market or something else familiar in the area you live – are great investments and store of value.
We can think that investing in these markets is risky because it is. However, this is another store of value that could be part of asset protection and diversification of your net worth. It’s risky but you can get capital growth exceeding what you could expect in your home country, or in neighboring countries. There are also assets such as real estate that could give you high rental yields.
You can also diversify your net worth through foreign currencies, or by investing in developing economies that are growing faster than Western countries. For diversification it’s good choice, for asset protection it’s a smart one.
I mentioned just some examples of stores of value. There are many more. It’s good to consider multiple options to start diversifying your own stores of values. Don’t go with your entire net worth into one store of value because it’s bad for protecting your assets. The best thing to do is to protect your assets with many options.
This is what asset protection is: strategy/strategies to protect yourself and your assets by diversification.
Want to learn more about the asset protection or looking for asset protection strategy? Make an appointment to speak with our consultants.