21 Jul Money & Italian cars
The Race Towards Wealth Preservation.
“Fiat money“ is currency which derives its value from government regulation or law. It differs fromcommodity money, which is based on a good, often a precious metal such as gold or silver, which has uses other than as a medium of exchange. The term derives from the Latin fiat (“let it be done”, or “it shall be”).
The first use of fiat money has been recorded in China around 1000 AD.”
Fiat money, similarly to a car, loses its luster as time passes. (I say this from experience – my first new car was a red Fiat Panda).
Unlike money linked to the value of a real commodity, such as gold, the value of Fiat money depends on the good graces of the issuing government.
As we have learned over the last few decades governments are not only the largest debtors, they also tend to use borrowed funds for they own needs. In most cases the government will indeed pay its debt, but more often than not it will be worth a lot less upon redemption.
Government mechanisms have become more elaborate and the scope of debt has risen over time; therefore, the government attempts to borrow as much as possible and return as little as possible. One way to achieve this is interest rates, as this is one of the mechanisms within the power of government.
Since 2008, global interest rates are extremely low, and millions of people find it difficult to enjoy the fruits of their savings.
We have specific expertise in managing investments that generate high current yields in the US market.
“You have to pay to play”
This sentence was impressed upon me by an investor who insisted I invest my own money in the investments I presented to him; and so I did. It made perfect sense after I had the opportunity to work for the Rothschild Bank, who also used to tell investors:
“We put our money where our mouth is”. Easy to say if you’re a Rothschild, right? Believe it or not, it works.
It works on two levels. Firstly, almost always when a money manager invests his own capital he will consider investment decisions more heavily, and secondly, in terms of the fees, the less costly alternative is not always the best one. Sometimes you have to pay to play. Note that most of the top money managers price their product accordingly.
This is the place to mention that it is important to know the building blocks of your investments, so that you will know not only how much you are paying, but more importantly – what you’re getting.
Our goal is capital preservation and we believe that cash generating portfolios have a distinct advantage.
In my next blog: picking the building blocks; as in the diamond industry, some stones are worthless, whereas others are real gems.
Dedicated to my son Amit, who recently celebrated his Bar Mitzvah and who time and time again surprises me with his knowledge.