When Cash Is Devalued, Where Should Investors Look For Salvation?

When Cash Is Devalued, Where Should Investors Look For Salvation?
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With a difficult 2020 receding into the past, investors are left to wonder what lies ahead for them, the economy, and their portfolios in 2021.

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The Impact Of The Pandemic On The Economy

Unfortunately, they may find that some investing decisions are still tied to the events of last year.

Hedge Fund Launches Jump Despite Equity Market Declines

Last year was a bumper year for hedge fund launches. According to a Hedge Fund Research report released towards the end of March, 614 new funds hit the market in 2021. That was the highest number of launches since 2017, when a record 735 new hedge funds were rolled out to investors. What’s interesting about Read More

Because of how the COVID-19 pandemic affected the economy, the Federal Reserve saw to it that enormous amounts of money were printed in 2020. That effort to shore up the economy also set off debates about inflation.

Reports show that in excess of 23% of the U.S. dollars now in circulation were created in just the last year, says Toby Mathis, a tax attorney, founding partner of Anderson Law Group and current manager of Anderson’s Las Vegas office.

“This bodes well for gold and cryptocurrency as hedges, but really means investors need to be in dividend-paying stocks and real estate to avoid the hard blow of the effect of the U.S. monetary policy,” he says.  “Essentially, your cash is being devalued, so you need to buy assets that pay you.”

Tips For Investors To Buy Assets With Devalued Cash

Mathis’ tips for investors in these tenuous times include:

When Investing In Real Estate, Target Low-priced Rental Properties

For inexperienced investors, real estate shouldn’t be the first option, Mathis says. But for those with some investing savvy, it’s a good addition to their overall investing strategy – if they are careful about making the right moves. “You want to save up for your first property, and buy with cash,” he says. “This is the best bet for this investment actually making you money. You should pull that extra cash from stocks, or savings, and purchase a rental property between $70,000 to $120,000. Yes, properties at that price do in fact exist. You’ll find them outside of the big cities with increasing populations.”

Realize That Stocks Are More Liquid Than Real Estate

While Mathis praises real estate as an investment, he acknowledges it has its drawbacks if you suddenly need cash. Stocks can be bought and sold much more quickly. “I can buy a share of a stock and I could sell it tomorrow and get access to that cash within two days,” he says. “If I buy real estate, I could buy it today but I’m probably not going to be able to close tomorrow. Even if I buy with cash, it’s still going to be a week or two. And usually, your closing is going to take 30 to 60 days.” The same is true when selling real estate. “If you have an unexpected life event — your car breaks down, you lose a job, you have a medical emergency — stocks are much more liquid,” Mathis says. “You can turn them into cash much easier than you can real estate.”

Look For Stocks That Pay Dividends

Mathis says investing in stocks is a smart move for both experienced and inexperienced investors, but he also cautions that not all stocks are equal. Some pay dividends, some don’t. He recommends avoiding the latter. “If you’re investing in stocks that don’t pay dividends you’re leaving close to half of the benefits by the wayside,” he says. “And you’re not going to do as well. You have to invest in dividend-producing companies to see true growth.”

“When people ask me whether to invest in real estate or the stock market, my answer is always ‘yes,’ “Mathis says. “Either one can be great. I still say stocks are best for investors who are just starting out and need to gain some knowledge and experience, but ultimately you would like to have both.”

About Toby Mathis

Toby Mathis, author of the upcoming book Infinity Investing: How the Rich Get Richer And How You Can Do The Same, is a founding partner of Anderson Law Group and current manager of Anderson’s Las Vegas office. He has helped Anderson grow its practice from one of business and estate planning to a thriving tax practice and national registered agent service with more than 18,000 clients. In his work as an attorney, Mathis has focused exclusively in areas of small business, taxation, and trusts. Mathis has authored more than 100 articles on small business topics and has written several books on good business practices, including Tax-Wise Business Ownership and 12 Steps to Running a Successful Business.

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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)www.valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver
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