The Art of Wealth Preservation
Last week we looked at the devastating effects inflation can have on the real value of your wealth. We did so in terms of both its capital value and your ongoing income requirement which invariably increases as time goes by.
If you have already have some wealth, this subject will be close to your heart. If you have not yet created much wealth your understanding and the importance that you place on this will likely not be at the forefront of your thinking as yet. But it’s as well that you become aware and become educated in order that when the time creeps up on you the preparation you have made is already in place.
There are many tips, references, systems and methodologies available to study and adopt when it comes to managing wealth. No one person is going to be an absolute expert and those who have superlative skills are likely already protecting a vast pool of wealth themselves. Warren Buffet or George Soros are two examples of successful self-made investment magnates.
Whilst the principles and investment theories of these billionaires are sound they also need to be able to adapt to ever changing situations across global markets and the circumstances that affect the constantly changing world.
Sometimes these can seem rather farfetched. Take, for example, the Barclays Property Skyscraper Index. This has recorded that there is a correlation between the building of record tallest skyscrapers and subsequent financial market crises. 40 Wall Street was built in 1929, the Chrysler Building in 1930 and the Empire State Tower in 1931. The great depression followed soon after. The New York World Trade Centre completion, in 1973, and Sears Tower in 1974 were followed by the oil crisis and market turmoil of 1974/75. Petronas Towers, in Kuala Lumpur, was completed in 1997 and followed almost immediately by the massive Asia currency crisis.
During the next six years China will complete more than 124 skyscrapers increasing their total number of buildings of this type by more than 80%. India currently has two of the world’s 276 skyscrapers and is scheduled to complete a further 14 in the next five years. Although none of these will make tallest building in world accolades are we staring at these two emerging major economic powers faltering in the wake of such construction and engineering achievements?
In more current shorter term signs,confusion seems to remain. Despite Italy having the same credit rating as Kazakhstan and eight other EU countries being downgraded, the EU’s bailout bond fund was three times oversubscribed when it was recently auctioned. Moody’s predicted that banking stocks would fall in 2012 and three UK bank shares rose nearly 10% the next day. The following day the IMF reduced its global forecast for the year and the same banks rose again. Doom mongers may be correct; but not just yet.
It is election year in the US, Russia and France and this could mean politics will take precedence over a full economic recovery. The danger is very real and particularly in the US where we have seen irresponsible behaviour as a result of stalemate politics in the past year or so. Will this adversely affect market performance?
The point here is that there is no right or wrong. There are trends and events which will cause gains and losses possibly affecting your wealth in either direction.
There are a number of corporate profit warnings emerging and these tend to have negative effects on specific companies which can further influence market trends. They are not all necessarily bad and many of them may create good buying opportunities. Tesco was a recent example of this. Its share price plummeted following a profit warning although it is generally understood that the price will recover relatively quickly.
So should you place your money in a bank deposit and make a paltry return which will not even keep up with inflation? You will also be similarly hoping that the bank is a little safer than Lehman Brothers, which was invincible – wasn’t it?
Perhaps you should make some wise investments in different assets classes. Have you considered property and non-correlated assets as well as perhaps some sensible commodity areas? How do you find out what is available and then how do you invest in these areas in a way in which you feel comfortable and can sleep at night? Are you minimising the high fees and charges often levied on the innocent investor? These are often imposed by the most reputable banks and large organisations because people are confident that they are “in the right hands”.
Perhaps a visit to a reputable independent financial adviser will be a wise move. A free financial health check will cost you only the sky train fare and an hour of your time. Your professional will then be able to assist you by creating a profile and discussing with you what your future aspirations are about your financial future. He will slowly guide you toward the right areas to avail you of financial independence. He will also advise you of all the fees and charges which relate to an investment rather than your being at the whim of formidably larger institutes.
There are currently six trends which are prevalent in the world today which could have a bearing on your own wealth protection:
- Continuous emerging market strength
It is a fact that emerging markets have a very real economic advantage over the western world with one resource. Labour is cheap and will remain so for a while to come. This will make the emerging markets strong. They also have a combination of labour and natural resources which will beat the rest of the world hands down.
Emerging markets are thus still thought to be the power house of the world in the future. Asia continues to be the most significant of them all.
- Commodities
There can be no reduction in the demand for commodities whilst the world’s population continues to grow. See Net Worth 27 July 2009, The Commodity Super Cycle. This super cycle is still thought to be in progress despite recent dips in values.
- Western stagnation
With emphasis on the currently struggling economies of the western world and the current aspects like the EU debt crisis it is going to be difficult for these economies to regain substantial growth in a short time frame. They are more likely to stagnate.
- Technology
With the technology acceleration trend in the past 50 years there is no reason to feel that this will slow down any time soon. It is actually likely that technology will advance even more rapidly.
- Bioscience
Advances in this area have gained momentum recently. It is highly likely that further developments in bioscience and pharmaceuticals will continue gaining ground quickly.
- Demographics
Medical and bioscience technology advances are increasing longevity and creating an ever aging population where the world will be forced to deal with the economics of this silent powerful time bomb.
These points do not create the precise scenario for what will happen in the world markets this year. They are trends which may affect what happens.
In order that you are able to use these to your advantage in preserving your wealth you will be wise to engage a professional adviser to assist you along the way in all the aspects of your business of living life.
Andrew Wood has been an expat in Asia for 32 years and is Executive Director with PFS International. He has been writing Net Worth articles for four years and has made a significant contribution to the PFS library of financial service articles dating back over seven years. These articles which cover the complete A-Z of financial planning are available to readers on request
Questions to the author can be directed to PFS International on +66 (0) 2653 1971 or email to enquiriesthailand@fsplatinum.com.
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