Investments for the Decade of the 2020s | Robert Wayne Atkins, P.E.

Investments for the Decade of the 2020s
Copyright © April 2, 2021 by Robert Wayne Atkins, P.E.
All Rights Reserved.

Introduction
Money in Mousetrap

Almost everything has been changing at a very fast pace since the 1970s. This includes the erosion of traditional family values, a decline in academic standards, the proliferation of government agencies and new laws, the collapse of major shopping malls, the disappearance of locally owned family businesses, a tremendous increase in internet shopping by people in all age groups, an increase in digital entertainment services, and a collapse in the confidence that people have in the truth and objectivity of the daily news that is reported in newspapers, on television, and on their digital devices.

Investments have also changed significantly. This article will briefly look at the advantages and the shortcomings of some of the investments that are available in the decade of the 2020s.

A Few Investment Options
The following are a few of the investments that a person may wish to consider in the decade of the 2020s.

Depending on a person's financial resources and a person's financial obligations, some of the following investments may be more attractive than the other investments.

Your Personal Residence: All of us need to live and sleep somewhere. Some common options are to buy, lease, or rent the place where we live. Or we could live with our parents, grandparents, or a close family member. This option might allow a person to save some money so they could buy their own home, if the person is diligent and saves a reasonably amount of their income every payday. A mobile home, or a pre-fab home, may be a reasonable option for some people. The first home we bought was a double-wide mobile home on a small piece of rural real estate. After three years we were able to sell the mobile home for enough money to purchase a brick home in a nice residential neighborhood near the town where my wife and I had our jobs. However, buying a home is not for everyone. If you have a job that requires that you spend a lot of time in other cities then buying a home may not be a good choice for you. If you purchase a home then I strongly recommend that you find a bank that will loan you the money at a fixed-rate and not a variable-rate. The bank will try to talk you into a variable-rate because it is in their best interests. But a fixed-rate is in your best interests. With a fixed-rate loan the monthly payment will remain constant over the life of the loan and this adds predictability to your monthly expenses. The interest on a home loan is also tax deductible. If you decide to investigate this option then you need to do a lot of research before you make your final decision.
Investment Real Estate: There are a lot of different options for investment real estate. In most cases you will not be able to obtain a loan to buy this type of property and this means you will have to pay the entire purchase amount in full at closing. There are a lot of television shows that make it appear that it is easy to buy a "cheap" home and "fix it up" and then sell it for a huge profit. However, nobody who loses money on one of these deals makes a television show about it. I have family members who have been doing this for many years and usually they make a little money on each home after they have "fixed it" and sell it. But they have occasionally lost money because of one or more problems with a home that were not discovered until after they purchased the home. This is a high risk type of investment but it might be a reasonable option for a person, or a few close friends, who are in the construction business if they can only work their normal jobs during "good weather." This would give them a place to work "inside" during really bad weather and maybe earn some money in the long-run on their "days off." If a few close friends buy a home together then the deed should be in all of their names so that there will be very few potential problems with the division of the money when the home is sold. This assumes that each person invested the same amount of money in buying the home, and invested the same amount of money to pay for the improvements, and each person did the same amount of actual work to fix up the home.
Transportation: Depending on where you live, and how you get to work, and how you do your shopping, a personal vehicle may be a good option. However, in my opinion, a "new" vehicle is a very high risk investment at the current time. The number of problems that new car owners are currently experiencing with their new cars is very discouraging. The mechanical complexity of the new cars and the number of components that are not working correctly is increasing every year. If you really must have a "new" car then you have two options:
- Buy: Wait until the end of the model year to make your decision. For example, if you want to buy a new 2021 vehicle, then wait at least nine months after they have become available at the local dealership and allow other people to experience all the problems that may be present in those new vehicles. After about nine months you can do an internet search on the vehicles you are interested in and determine if they have a good or a bad track record. If the type of vehicle you desire has really good customer feedback after about nine months then you can still purchase a "new" car at a dealer before the next year model replaces it.
- Lease: Lease the vehicle you want for the shortest time period possible. A lease agreement allows you to easily get rid of the car at the end of the lease contract if you discover you don't like it for one or more reasons. However, if you think you might really like to own the car then you may be able to add a purchase option to the lease contract before you sign it. You should also make absolutely sure that the lease contract provides you with a "loaner vehicle" if your lease vehicle requires warranty repairs during the term of the lease contract. This protects you from being without transportation if the dealer has to wait, and wait, and wait for a specific replacement part to be "made" and "delivered" so that your leased vehicle can be driven once again. Please remember that you still have to make the lease payments even if your vehicle is out of service due to a manufacturing defect.
In my opinion, a low-mileage used vehicle that is in excellent condition may be a better option for some people. A very low-mileage used vehicle that was previously owned by only one person, and is between 2 to 4 years old, and is in excellent overall condition, and that has received a lot of very positive customer reviews on the internet, may be a good choice for some people.
Stocks: I strongly recommend that you do not believe everything about the stock market that you hear or read. Instead may I please suggest that you consider doing the following very simply analysis on any stock that you are considering.
How to calculate the true value of a stock: Do an internet search and find the most recent "balance sheet" for the company. The left side of the balance sheet will list all the assets of the company and it will show the "total asset value." The right side of the balance sheet will show two totals. The first total will be the "total liabilities" of the company. This is how much money the company owes to its creditors. The second total on the right side of the balance sheet will be the "total net worth" of the company. This is how much of the company is actually owned by the company. "Total net worth" is the "total asset value" minus the "total liabilities." This makes the "grand totals" on the left side and the right side of the balance sheet "balance." Divide the "total net worth" of the company by the "total number of shares outstanding." This is the "upper limit" of what one share of stock is actually worth. It is the upper limit because if the company goes out of business for any reason then its assets will usually be sold for less than the value shown on the balance sheet, and the company's "actual net worth" will be a lot less than what is reported. Consider the following hypothetical example:
Will stock prices go up or down? Many of the people who buy and sell stocks believe that, sooner or later, they will be able to find someone who will be willing to pay more for the stock than what they paid for it. The reason they believe this is because this has been the history of the stock market for many years. However, in my opinion, almost every stock is currently seriously overpriced. If there is a "downturn" in the economy then the prices of all stocks will collapse so violently that almost everyone who owns stocks will lose almost all of the money they have invested in stocks. I do not know when this will happen. But I do know that it will happen because history always repeats itself and it always comes as a shock to most people. I pray that you will not be one of those people.
Bonds: There are a variety of different types of bonds. Bonds pay a fixed amount of interest on a regular basis. The value of a bond goes up when the national interest rate goes down. The value of a bond goes down when the national interest rate goes up. The two major types of bonds are company bonds and municipal bonds.
- Company bonds are issued by organizations that wish to raise money. If you buy a company bond then you become one of the "legal creditors" of the company and your ownership appears on the right side of the company's balance sheet under that company's liabilities. However, different creditors have different legal rights to the assets of the company if the company goes out of business so you may not receive the full face value of your bond if the company fails. However, you will receive more than the stockholders of the company because the company's stockholders have the lowest claim on the company's assets.
- Municipal bonds are sold by local governments to raise money for improving their communities. The bonds are backed by the local government's ability to tax its citizens. Municipal bonds have traditionally been considered a safer investment than company bonds. The interest on municipal bonds may be exempt from certain types of income taxes. Please talk to a professional tax advisor before you purchase a municipal bond.
The advantage of a "highly rated" bond is that it will usually pay the amount of interest each time period when it is due, and the bond will be redeemed for its full face value when the bond becomes payable at the end of its life as stated on the bond (such as 20 years from the date the bond was first issued). Bonds can be bought and sold at any time similar to the way that stocks are bought and sold.
Mutual Funds: A mutual fund buys stocks and/or bonds with the money invested in it. Some people believe this is a safer way to invest because the mutual fund has its money spread out over lots and lots of investments. If one investment does poorly then the loss should be more than offset by their other investments that do better. This is the theory but it does not always work out this way in practice. The reason is because the value of a mutual fund increases and decreases with the value of its investments. Although it is rarely mentioned, mutual funds, and similar institutions, actually own a huge amount of stocks and they are one of the primary reasons why the various stock market indicators remain at a relatively high level. These institutions buy and hold stocks for a very long period of time and they help to stabilize the prices of the stocks they own because they do not sell their stocks very often. If they make a decision to liquidate their position in a specific stock then they almost always immediately reinvest the money in a different stock so that the total amount of money in the stock market remains relatively stable. However, if the average price of all company stocks declines then the value of the mutual fund also declines. I personally do not recommend mutual funds at this time.
Silver and Gold: Government minted silver and gold coins are almost always a better investment than silver or gold in some other form, such as bars or ingots or jewelry. Government minted coins contain a specific amount of precious metal and they are difficult to counterfeit or shave. Shaving is when some of the precious metal is filed off the item and then the area that was filed is polished to hide the theft. The percent purity of these forms of silver and gold is difficult to verify and it is easier to counterfeit bars or ingots or jewelry. Therefore government minted silver and gold coins are the best choice.
One of the problems of investing in silver and gold coins is that you normally pay a premium above the spot price of the metal when you purchase the coins. Later when you sell the coins you may only be offered the spot price of the metal or a little below the spot price. This means the metal price has to increase five percent or more just to break even on your investment. Therefore silver and gold is usually not a good short-term investment. Whether it is a good long-term investment depends on what happens to the price of the metal. The price of silver and gold changes constantly. There is no way for the average person to predict whether the price will go up or down. However, unlike paper money and digital money, silver and gold does have value as a precious metal. This means that the value of silver and gold cannot drop to zero or close to zero.
- Silver or Gold Ingots Made by an Independent Organization (Rounds or Bars): Some companies sell precious metals with the weight of the precious metal stamped on the ingot with their company logo. It is not easy to verify the purity of these items and therefore they can be difficult to sell. Generally only a gold and silver dealer will be willing to purchase these items from you and they will probably offer you a lower price because they know they are the only buyer you can sell to. Therefore I suggest that you do not invest in ingots.
- A Paper Receipt for Silver or Gold Stored in Some Company's Vault: Some companies will offer to sell you precious metals and keep it safe for you in their company's vault. They will send you a receipt for your purchase. In my opinion, this is not a smart way to invest in precious metals. You have no way of knowing if the company actually has your precious metal in its vault. The company may go bankrupt and you could lose your entire investment. Or an unethical person in the company may steal the precious metal from the vault and disappear to a foreign country. Therefore I strongly recommend that you do not invest in a piece of paper that says you own some silver or gold.
Precious Jewels: Diamonds, rubies, emeralds, and sapphires can make nice jewelry. However, the true value of the jewelry and the precious stones is not easy to determine. Therefore it is not unusual for a person to pay more for jewelry that contains precious stones than the price they are able to sell that jewelry for at a later date. Pawn shops will only pay a tiny fraction of the value of the jewelry. Jewelry stores will usually offer a little more than a pawn shop but they will not offer anywhere near the price you originally paid for the jewelry.
Digital Money (not government digital money): Digital money has been receiving a lot of publicity in recent years.
The 2020 Federal Income Tax Form 1040 includes the following question near the top of the first page of the form:
"At any time during 2020, did you receive, sell, send, exchange, or otherwise acquire any financial interest in any virtual currency? Yes or No?"
May I please suggest that you think very carefully before you invest in any type of digital money. Digital money has the same advantages and shortcomings as "stocks" as discussed earlier in this article. You may be shocked to discover that some "digital money corporations" have almost "zero tangible fixed assets" and that the value of their digital money is in the "minds" of their investors.
Foreign Currency: The 2020 Federal Income Tax Form Schedule B (Interest and Ordinary Dividends) includes the following question near the bottom of the first page of the form:
"7a - At any time during 2020, did you have a financial interest in or signature authority over a financial account (such as a bank account, securities account, or brokerage account) located in a foreign country? Yes or No?"
Transferring your money into the currency of a foreign country may or may not be a good investment decision. It should be mentioned that in the year 2021 some Swiss banks are reporting issues that could have a significant impact on their financial health.
It should also be mentioned that most nations, including the USA, are significantly increasing the amount of their digital money that is in circulation. This is helping to maintain the stability between the currency exchange rates for these different currencies because all of the currencies are inflating at more or less the same rate. The long-term problem with this type of inflation is that the increase in digital money is not being matched by an equal increase in the number of "products" that are being made each year by each nation. Sooner or later this disparity between the amount of digital money that is available worldwide, and the number of products that are available worldwide, will result in a significant increase in the prices of the products that are available. The price increases will probably be relatively uniform across all world currencies and therefore there will be minimal advantage to having your money in a specific foreign currency. The exception would be if the currency used by your country becomes relatively worthless, such as what happened in Zimbadwe.
Bank Savings Accounts: At the current time a bank savings account pays a trivial amount of interest of 0.1% or less per year. However, the money in a bank savings account is one of the safer investments in the year 2021 because the chance of a "bank run" is relatively small at this time. However, if the stock market collapses and if people need money to pay their monthly bills then some people may have to use the money in their savings accounts to pay their monthly bills. Whether this will have any impact on the solvency of a specific bank is unknown.
Certificates of Deposit (CD): A Certificate of Deposit is a financial agreement between you and a financial institution (bank, insurance company, etc.) where you agree to leave a specified amount of your money on deposit with the financial institution for a specified period of time, such as 1 year, or 2 years, or 5 years, and the financial institution agrees to pay you a specified amount of interest on your money. The interest rate on CDs is usually a little higher than the interest rate paid on a savings account. However, there is a substantial interest penalty if you withdraw your money before the time established on the CD. I suggest that you purchase several separate CDs instead of one large CD. For example, if you have $10,000 to invest, then you could purchase ten $1,000 CDs instead of one $10,000 CD. If you suddenly needed some money then you could cash in one or two smaller CDs and you would lose the interest on those CDs but the other CDs would still continue to earn interest. But if you only have one $10,000 CD and you had to cash it in because you needed money then you would lose a lot of the interest on the entire $10,000. The financial institution may try to talk you out of several smaller CDs and into one or two larger CDs because this is to their advantage but not yours. Therefore I suggest several smaller denomination CDs instead of one or two larger denomination CDs. In the past a higher interest rate was paid on CDs with a longer maturity date, such as 2 years or 5 years. However, in the year 2021 the highest interest rate on CDs is on maturity dates from 6 months to one year. For example, at the beginning of the year 2021 some banks are paying between 0.25% to 0.5% on their 6 month CDs. Therefore the short-term CDs of a "highly rated" financial institution are highly recommended.
Credit Unions: Credit unions may be an option for some people. After a person has had a credit union account with a credit union for a reasonable amount of time, then the person may be able to obtain a credit union loan with a very reasonable interest rate in order to purchase a vehicle.
Individual Retirement Accounts (IRA): These are reasonable options for some people. The money invested in an IRA, up to the legal maximum, is exempt from income tax until the money is withdrawn from the IRA. The downside of IRAs is that there are legal limits to how much money you can withdraw from an IRA, and there may be penalties on the money that is withdrawn prior to your retirement. Therefore an IRA may not be a good option for someone who might need access to their money for a future unexpected emergency.
Employer Sponsored Savings Accounts: These were once a popular "employee benefit" that some companies used to attract and retain good employees. However, some companies have stopped supporting these types of accounts. If your employer has a company sponsored savings account then you should ask your company to provide you with the specific details about their accounts. Your company may match a preset percentage of your deposits to your account and you will become "vested" in the amount of money your employer deposits into your account with each year that you remain with your employer. There are also some restrictions on how much of this money you can withdraw during a specific period of time.
Employer Sponsored Retirement Plans: Some employers still have a company retirement plan in addition to Social Security. Some of these plans are voluntary and you may enroll in the plan when you first join the company, or during the company's "open enrollment" period once per year. If your employer has one of these optional retirement plans then you should ask your employer for the specific details about their plan.

Conclusion
As mentioned at the beginning of this article, each one of us has different financial resources, and different financial obligations, and therefore there is no single investment strategy that would be best for everyone.

Each one of us will need to decide how we can best use the financial resources that we have available in a way that maximizes our short-term and our long-term financial well-being.

Respectfully,
Grandpappy.

Grandpappy's e-mail address is: RobertWayneAtkins@hotmail.com