Stocknectar.Org Hedge Investing Information)

The EarthWhat 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 crash, via the following information. (Stocknectar.Org has received no approval or payment for any suggestions.)

1. Every well-known method of saving money has safer alternatives.

  • FDIC-insured bank accounts and CD’s are never as safe as short-term TIPS. In the event of a 2008-level recession, so-called “FDIC insurance” allows banks to replace your cash with plummeting bank stocks. A better alternative is VTIP, an Exchange-Traded Fund (ETF) that holds short-term US Treasury Inflation-Protected Securities (TIPS). Short-term TIPS sometimes lose -2% but usually gain about +2% annually. If you ask for “paperless statements,” there is no fee for buying and selling VTIP at Investor.Vanguard.com. (Additional no-fee short-term TIPS ETFs are STPZ at TDAmeritrade.com and STIP at Fidelity.com. Do not buy long-term TIPS ETFs because they can lose significantly.)
  • Individually-bought corporate stocks and bonds are never as safe as broad-exposure ETFs. Any individual corporate investment can lose -100% during a 2008-level recession. A better alternative is to divide the investment as follows: 1/3 VTIP + 1/3 VBK + 1/3 PHDG. VBK is an ETF that holds all the stocks of the S&P 600 Growth Index. PHDG is a hedging ETF that seldom loses much value and that often goes up in value if VBK loses. (Additional alternatives are listed at Stocknectar.Org/ETF).
  • Gold and silver are never as safe as a combination of gold and US dollars. Never buy silver because silver loses more than the stock market during a recession. Gold is safer during a recession but lost -35% during 2011-2013. A better alternative is to hold 1/2 in close-to-spot gold coins + 1/2 in US dollars. The gold cuts in half the losses to inflation and the dollars cut in half the ups-and-downs of gold. However, for maximum security, do not hold gold or dollars in a bank or brokerage account. Hold them in safety deposit boxes using several bank locations that are not prone to natural disasters. Also, for “ordinary” US tax rates, you may need temporarily to sell 1/6 of your gold coins to a friend every 2 months. (More details are below.)

2. Investment resources provided by Stocknectar.Org.

3. Offsite articles by Stocknectar staff.

4. Our investment philosophy.

  • sn-how-to-be-richConsider 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 1/5 or perhaps 1/10. 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 devote their energies to helping out their grandchildren and favorite charities.
  • Never invest more than 1/5 of portfolio with a single mutual fund or with a single brokerage, 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 most investments to 1/10 or ideally 1/20 of total savings.
  • For emergency cash, consider holding a combination of gold and dollars. The safest way to hold cash is to hold 1/2 in close-to-spot gold coins and 1/2 in US dollars (or a combination of stable currencies)–both held in safety deposit boxes in several bank locations that are not prone to natural disasters. The gold will cut in half the cost of inflation and the dollars will cut in half the ups-and-downs of gold. The only problem is that there is a high US tax rate of 28% on long-term gains for gold. However, the “wash rule” states that “ordinary” US tax rates will apply if an investment is sold within one year and not rebought for 30 days. For stocks, the “wash rule” usually increases your taxes–but for gold, the “wash rule” probably decreases your taxes to the same rate that you would pay for interest on CD’s or savings accounts. This might be done by selling 1/6 of your gold coins to a friend on an I.O.U. basis–then after 2 months buying it back for the purchase price plus 30% of any change in market value. Every 2 months, sell a different 1/6 to the same friend. You retain custody of the gold as collateral for the I.O.U. Your friend receives a CD with photos, accounting and your written agreement. Your friend must pay taxes on 30% of any net gains. However, you might also agree to pay any tax bill or be paid for any tax deduction while consequently adding to or subtracting from the next I.O.U. For your friend, the net effect is the same as if owning 5% of your gold (30% x 1/6)–while risking nothing on storage or purchase. For you, there are tax benefits with no more risk than if you loaned some cash to a friend while holding gold as collateral. If at any time your friend is either in need of cash or believes that the price of gold will fall–your friend can ask to be paid the net long-term gains of 5% of your gold–which you can supply either by selling to a dealer or to yourself at the dealer’s then-current “buy” price. You can then continue as before, but using the dealer’s then-current “sell” price for the new I.O.U. Therefore, both of you are helping out a friend in exchange for substantial benefits and with no substantial addition of risk.
  • 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 independence, or if you just need storage space–it is important to accommodate this while reducing expenses and not cramping your lifestyle. That done, home ownership is better than gold because you cannot live in a bar of gold.
  • Consider 1/1,000 portfolio to Greenpeace each year. The human race is currently non-sustainable. Things could be different if only everyone paid 0.1% of their investments annually to help preserve the free air, water and fish that support us.

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