Stocknectar.Org Hedge Investing Information

The EarthLast major revision: June 2014

What we are about. Stocknectar.Org hopes to assist any investor large or small to maximize gains, while also hoping to minimize losses in the event of a severe stock market recession, via free information.

(This is only general information, not financial advice. Please modify any suggestions according to your personal situation. If you do not fully understand this information, please seek professional advice. Stocknectar.Org receives no approval or payment for any of these suggestions.)

A. Top tips for financial success.

  1. How to be wealthy: you are already wealthy if you can live on half your income, invest the other half. (For details see section D-1 below.)
  2. vbk-phdg-2011-2014hHow to invest shrewdly: invest in index ETFs, not individual stocks–and invest 20% in PHDG, a “hedging ETF” which often gains value whenever most indexes are losing value. (For a list of top-performing ETFs see Stocknectar.Org/ETF.)
  3. How to hold money safely: do not trust so-called FDIC-insured bank accounts or CD’s. It is much safer to buy short-term US Treasury TIPS, which are “inflation protected” and also “backed by the full faith and credit of the US government.”

B. Investment resources provided by Stocknectar.Org.

C. Offsite articles by Stocknectar staff.

D. Our investment philosophy.

sn-how-to-be-rich1. Consider not-spending. The true measure of wealth is not how much you earn, but how little is your proportion of spending to earnings. You can be wealthy right now–if you can simply find people whose income is half as much as yours and live as they do. Children should learn to place half their allowances in piggy banks and grownups should do similarly. If systematically investing 1/2 your salary is not feasible, try for 1/3 or at least 1/4. Immediately invest a portion of all income and then do not think of it as your money. Then eventually your investment income can become as large as your salary. If your grandparents had done this, then instead of living hand-to-mouth, you and your descendants might live in security while devoting their energies to helping out their grandchildren and favorite charities. Also, if millions of ordinary citizens always remain secure, then financial disasters will happen less often and be less severe. (This is the purpose of this free information provided by Stocknectar.Org.)

2. Never invest more than 1/5 of portfolio in a single company, municipality, sector or small country. The Enron scandal was not the first nor will it be the last company failure to devastate many families. Similarly, Singapore or Disney World might be good places to invest 1/5 of your savings but no more. In general, we would suggest to try to limit any individual liability to 1/10 or ideally 1/20 of total savings. (Also note that ETFs can hold dozens of stocks and therefore can be much safer than individual stocks. For a list of suggested ETFs see Stocknectar.Org/ETF.)

3. Consider Ā¢entsible home ownership. The right home can make you, the wrong home can break you. The right home is easily affordable on a 15-year mortgage, close to work, has low tax and insurance rates, and includes a large two-door camper or a well-separated rental unit. If you or a relative fall on hard times, or if an elderly relative needs to live nearby, or if a young relative needs a separate space, or if you just need storage space–it is important to accommodate this at minimal cost and while not cramping your lifestyle. That done, home ownership is better than gold because you cannot live in a bar of gold.

Gold-vs-Stocks-2007-20134. For emergency cash, consider holding a combination of dollars and gold coins. The safest way to hold cash might be to hold 1/2 in close-to-spot gold coins and 1/2 in US dollars (or the most stable and usable currency for your region)–both held in safety deposit boxes in several bank locations that are not at-risk for political instability or natural disasters. The gold portion probably will cut in half the cost of inflation and the dollars probably will cut in half any ups-and-downs of gold. However, gold coins may involve complications as explained below. Until these complications can be resolved, it might be best simply to hold cash in safety deposit boxes.

US citizens need to consider that there is a high tax rate of 28% on long-term gains for gold. The IRS “wash rule” might reduce this to short-term tax rates–the same rates as for savings bonds and CD’s. This can be achieved by temporarily selling 1/6 of your gold every 2 months, perhaps to a relative or to another gold investor who also sells a similar amount to you. If you buy-and-sell a different 1/6 of your gold every 2 months, then none of your gold is held for more than 10 months each year. All gains then qualify for short-term tax rates.

To avoid any transportation risk, you can retain custody of all gold that was originally “yours.” For example, you can sell 1/6 of your gold with “delivery on demand,” meanwhile holding this as collateral for having bought the same value with “delivery on demand” from the other person. Meanwhile only needing to exchange written agreements along with one of six CD-ROM discs holding photos of the specific coins. Two months later, you buy back the gold at current market rates. The gold is never moved. Of course, with each transaction, the seller must claim short-term income tax payments or deductions on any gains or losses. (Optionally, you might also agree to share liability if anything should happen to any vault location–in effect, everyone then has the same level of security as if having the total number of vault locations of everyone involved.)

Also, please note that buying-and-selling all of your gold once a year is unfeasible if there is a sales or use tax. You might avoid sales taxes if the gold is transacted between separate states which both have no use tax–or by holding the gold in states with no sales taxes. Also, laws can change, so please reconfirm your protocol annually with a tax professional. Be sure to obey all applicable laws. It is not acceptable for a supposedly risk-reducing investment to be at-risk for tax penalties.

(If you do not know anyone who is willing to buy-and-sell 1/6 of your gold every two months–it might be possible to achieve the same goal by selling 1/6 of your gold to a friend on an I.O.U. basis–so that your friend risks almost nothing. For example, you might require only a 6% deposit and also adjust the repurchase prices to reflect only 30% of the 2-month changes in gold prices. Thus your “sell” price will always be different from your “buy” price–as is appropriate for an I.O.U. transaction–and with the net result of your friend normally receiving the gains of 30% x 1/6 = 5% of your gold after only paying for 6% x 1/6 = 1%. In addition, your friend also might at some time receive the entire 2-month gains of 1/6 of your gold by claiming the right to sell the 1/6 to someone else after paying-off 100% of your most recent “sell” price. However your friend can only claim 2-month gains. You own the principal. Therefore your friend might only consider selling the gold to someone else after a huge spike in gold prices, such as is only likely to happen during an economic crisis. If so, your friend is likely to need the gains and also might volunteer to share half the gains in order to remain your friend. You could of course make different agreements. However we suggest that it is clear that your friend is the full owner of 1/6 of your gold. Also that you either help a friend to own 1/6 of your gold with only nominal risk to your friend–or you work with a friend who buys and holds gold without encouragement from you–thus in either case adding no significant ethical responsibility.)

5. Consider donating 1/1,000 of the value of your investments to Greenpeace each year. The current direction of the human race is obviously non-sustainable. Things could be different if only everyone paid 0.1% of the value of their investments towards supporting the free air, water and fish that sustain us–1/10 of what many investors pay to a stock broker.

Comments are closed.