Wealth preservation - Self preservation?

by Alvaro HIDALGO

As a follow up to our last blog entry http://bit.ly/njITKT  and after  the recent havoc in financial markets and the serious doubts on what is to come next,  many are no longer wondering how to obtain the highest return from their investments but how to keep those funds safe.

Indeed, we have seen this summer how top 2007 star managers as John Paulson  are having -30% performances or Bill Gross, manager of the world’s largest bond fund for Pimco, has seen his widely followed call to avoid US government debt backfire.

Masters of the Universe loosing against markets

As the FT clearly states: “But the fact that the 'Masters of the Universe' have got it so wrong is a sign of how upside down the investing world is today. Everyone has struggled, with two-thirds of managers of stock funds failing to beat the S&P 500 index benchmark in the past three years according to Standard & Poor’s. On the eve of another September when banks are starting to eye each other nervously -as they did in the run-up to Lehman Brothers’collapse in 2008- mere mortals face a rapidly shifting landscape”  See FT article http://on.ft.com/oCOntn

More and more sources refer to this crisis and to the banks as facing not only a liquidity crisis but a solvency one. The significant reduction in volume in interbank market is the best telltale of this. To create even more unsettlement, 6 recent Economy Nobel prizes have issued 6 different –and some of them opposed- recipes.

Gold: 20% up in 2 months, 46% up in 1 year

Finally –or as a result-, gold has gone 46% up in the last year, 20% in the last two months. If gold was traditionally bought as a way to preserve wealth, does the current price mean that everything else is now worth 46% less than it was a year ago, or is its price a reflection of -again- crazy markets and decision makers?

So, put it in the simplest of ways.……

Are you going to trust these guys with your money?          
                                    .

    



                                                       Again?


Banks & bankers come and go, markets change swiftly and randomly, fortunes are made and savings are lost, but only assets stay.

And in all the crisis of the last century, nothing has preserved wealth more efficiently than high quality assets. Whether it be top of the range property investments, art or even signature cars, if you can hold on to the asset, its real value adjusted for inflation will be maintained or even increased with time.

The problem with these types of assets is that all of them required -up to now- additional cash flow to cover taxes, maintenance & security, insurance, etc.

Indeed, up to now.......One of the advantages of new property ownership systems has been that costs are covered by the operation, thus solving – at least partially in the worst case scenario- the cash flow issue.

But there is an additional benefit. Many banks are looking for both deposits & safe and profitable lending operations. By tying a property purchase mortgage with a guarantee deposit,  the investor is  (i) buying a solid asset, (ii) securing finance at reasonable levels and most importantly (iii) using also property as a way to secure the funds placed in banks, and not the other way around as we have been used to for the past 25 years. Indeed, by tying up a deposit/guarantee to an automatic reduction of the principal, the investor retains the possibility to convert at will the cash -a liquid but nowadays uncertain vehicle- into a solid wealth preserving investment.

Quality assets are immune to monetary crisis, exchange rate turmoil and policymakers' whims.

And as we have covered in all past blog entries, nothing helps to better preserve value -and its perception by the market-  than brands.

By creating a valuable product that will keep its value in time, branded residences provide benefits for all parties involved.

For more information please contact FIRSTLOGIC Consulting
http://www.first-logic.com
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