Arianna Huffington is one smart entrepreneur. In one fell swoop, she legitimized online newspapers and became an icon for women entrepreneurs. Congratulations to Arianna on the sale of the Huffington Post to AOL for $315 million!
Arianna now has some serious and difficult decisions to make about what to do with her money. After capital gains and California State income taxes, she’s likely to clear about $237 million. There’s no doubt in my mind that Arianna’s the type who will want to set up a foundation to benefit others. So let’s say she donates 15% to start a foundation. That will leave her with roughly $200 million to invest. What should she do?
I’ll tell you first what she shouldn’t do. She shouldn’t put it in bonds. Most financial advisors will recommend bonds for her to invest in. They will show her a track record of the last 30 years to illustrate how “safe” they are. And they will charge her a percentage of her assets to have professional managers manage the portfolio. There’s only one problem: there couldn’t be a worse move to make right now!
Bonds move in cycles and we just finished a 30 year up-cycle. For the last 30 years, interest rates have been declining from 18% to 1%. That means the value of bonds has been going up for 30 years, because interest rates and bond valuations move inversely. However, if interest rates are now headed up for the next 30 years, bond valuations will be declining for the next 30 years and it will be a terrible place to invest. No difference whether they are municipal bonds or government bonds – except with municipal bonds, she has the added concern of whether the bankrupt state of California will be able to pay their debts, which is what bonds are (see Meredith Whitney’s 60 Minutes interview). Again, looking at bonds in the rear-view mirror is very different from where we are today.
The other problem is that our federal government is printing so much money, it’s debasing our currency and reducing its purchasing power. Last October alone, the dollar lost 8% of it’s value. Because the government is printing so much money, the Chinese and Russians have developed a way to trade oil with each other without using dollars. Even Mexico has now made it illegal for stores and hotels to accept US dollars in their country! In addition, the Chicago COMEX is now accepting gold for payment. The handwriting is on the wall…are you paying attention? The economy is in new territory and you’d best be investing accordingly.
So what’s a newly rich woman swimming in dollars to do? Here are the suggestions I have for Arianna to preserve and maintain her wealth. I’ll warn you ahead of time, I’m looking to the current and future trends to make these suggestions and not the rear-view mirror like most advisors are.
1. Invest 20% in Goldmoney.com, a place that will store physical gold, silver, and platinum overseas for you. Owning physical metals are what the billionaires are doing now – George Soros, John Paulson, Jim Rogers, etc.
2. Invest 10% in physical silver and store it in a secure facility close to home, but not in a safety deposit box at the bank.
3. Invest 10% in Canadian or Australian currencies to maintain purchasing power.
4. Invest 30% in commodities like oil stocks, agriculture, alternative energy, nuclear, solar, wind, and rare earths.
5. Invest 20% in farmland. That’s where Jim Rogers and John Paulson are investing. Rogers has even said becoming a farmer will pay off more handsomely than a new MBA. I think he’s right about that.
6. Invest 5% in a second home outside of the country, like Uruguay or Paraguay.
7. Invest 5% in a Net Jets membership and another residence. You deserve it!
I realize my guidance is very non-traditional, but my intention is to help Arianna preserve her purchasing power and maintain her wealth. Any investment in US dollars like bonds, CD’s, cash, money markets, annuities, etc. won’t accomplish that. This is the rare environment where what appears “safe” is risky. Being forewarned is forearmed.
Linda P. Jones
CEO, Live Wealthy & Smart
Linda P. Jones Wealth Mentor CEO, Live Wealthy & Smart
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