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Welcome to How to Retire on Time, a show that answers your questions about all things retirement, including income, taxes, Social Security, healthcare, and more. This show is an extension of the book How to Retire on Time, which you can grab today on Amazon or by going to www.howtoretireontime.com.
This show is intended for those within 10 years of their target retirement date or for those are are currently retired and are concerned about their ability to stay retired.
Welcome to How to Retire On Time, a show that answers your questions about all things retirement, including income taxes, Social Security, health care, and more. My name is Mike Decker. I'm a licensed financial advisor who can even file your taxes. All that said, please remember this is just a show, not financial advice. Everything you hear should be considered informational.
Mike:Joining me in the studio today is Mr. David Franson. David, thanks for being here.
David:Hello. Thank you.
Mike:David's gonna read your questions, and I will do my best to answer them. You can text your questions anytime during the week. Save this number on your phone, (913) 363-1234. That is the number to text. (913) 363-1234.
Mike:Let's jump in. Hey, Mike. How do you prepare for a potential currency collapse? Yeah. So a currency collapse, which I'm gonna define because we need to define whatever this person is saying Sounds really serious.
Mike:Is when the value of a paper currency, a fiat currency, is not worth as much.
David:What's a fiat currency? That's not is that Yeah.
Mike:It's a weird term. No.
David:It sounds like the Italian car maker is a Yeah. Doing this. Am I wrong here?
Mike:Yeah. No. It's not little cars.
David:Okay. That's not little cars. Yeah. Got it. Check.
Mike:Those are fun to drive, though, if you ever get a chance.
David:I have driven one in Italy, actually.
Mike:Yeah. A fiat currency refers to think of the US dollar. Oh, so it's a currency that's backed by a government.
David:Okay.
Mike:K? So paper currencies. So the Mexican peso, for example, the Canadian dollar, or the loonie. Oh. Or there is your yen.
Mike:You've got the pound. These are all fiat currencies. They're backed by a government, and they're only as good as the credibility of the government that backs them. There is speculation since we left the gold standard that we're basically fictitious with paper money now, and a lot of other countries have done this as well. Whether that was the right move or the wrong move, that's a whole different conversation to itself, but we are on our own journey at this point.
Mike:K? So as long as The United States is a credible entity, our currency is intact. A lot of people are concerned about debt ballooning. And if debt balloons, then maybe people become concerned about the value of our currency. That if people don't continue to use the United States dollar in their trade globally, that may hurt the value of our currency.
Mike:There's a lot of ways that we could hurt our currency. I'm not doing it justice for our conversation today, but that's the the simple definition of it. So there's an expression. I'm gonna I'm gonna borrow it right now. It's it was from the podcast that's no longer available.
Mike:You can't even find it. They took it down by the Princeton Review. It was called LSAT in everyday life. This was back when I was had intended to become an attorney. Listened to it.
Mike:Loved one of the coolest podcasts. I love the introduction. It basically talked about how they took daily stories and pointed out the conclusions made. Many people make conclusions not based on the evidence given. Do you see that?
Mike:Okay. Basing conclusions not based on the evidence given. So they propose evidence, and then they make a logical leap to infer that it will affect something else. This happens all the time in our daily lives. We assume if x happens, then y happens when they're actually not directly related.
Mike:I'll give you an example.
David:Okay.
Mike:Many people believe that the stock market and the bond market are inversely correlated. That's not true. They're independent markets. Sometimes when the equities market, the stock market goes down, the Fed will drop rates. And if the Fed drop rates, that affects the bond market, which will increase in value.
Mike:And the theory behind it is that bonds will just make whatever their coupon rate is roughly, and if the Fed drops rates, then the bond market gets a little bit of boost, which helps offset the stock market losses. That's the theory behind it. Well, a lot of people sobered up and realized that that doesn't always happen because the last couple of years, the stock markets went down, and the bond market went down because we had an inflationary issue, and Powell had to basically between a rock and a hard place to decide, do I let inflation run away, or do I address inflation even though it will hurt the bond market and the stock market? And he did the latter, and I think he was the right decision to do that. So do you see how we make these conclusions?
Mike:Oh, we put bonds in there to offset the stock market losses. Well, that's not exactly how it works, but many people have made the leap of logic, or they've made a conclusion not based on the evidence actually given. K? There's a logical leap.
David:Okay.
Mike:K. So this happens all the time in finance, all the time. Half of my job is to properly define how an investment or product works, because we have been sold an idea that's not actually fully true. So in this situation, if you are in cash and our currency collapsed, yeah, you'd you'd be in a tough spot.
David:Because Wouldn't be as valuable?
Mike:Or Yeah. I mean, so if you held cash from 2020 to today, your cash would be worth 30% less roughly.
David:Mhmm.
Mike:Somewhere around there. K? If you put all your money in cash because you were concerned about the market, cash or cash equivalents. Okay? Your million dollars is now worth 700,000.
Mike:Ouch. In today's dollars, all things being equal, that's what a currency collapse could do. And if The United States debt gets out of hand, we've lost being the global reserve of trade and all these different high status positions, then, yeah, the United States dollar could become less valuable. So being concerned about the market going to cash is an issue. Going to CDs or treasuries may not be the solution.
Mike:Now what is a stock? Is a stock a United States dollar asset?
David:No. I don't think so.
Mike:It is not a cash or cash equivalent investment or product. It is the ownership of a company. Does Apple operate as a dollar or cash to cash equivalent investment? It does not. Could Apple operate overseas?
Mike:Oh, wait. It does. Is Apple a global entity? Yes. It does.
Mike:So you gotta start to understand, okay. If you invest in a company or you understand various different investments, that the price of that asset will increase alongside inflation, and that you could sell that asset in other global currencies, you've now hedged against a currency collapse. Do You see how that works out?
David:Yeah. The apple's not tied to the treasury or the right? Yeah. It's it's own thing.
Mike:It's its own thing. I mean, it's gosh. Apple is bigger than most countries Yeah. Yeah. When it comes to, like, production.
Mike:Right. So let's go back to Germany, for example. Germany had a currency collapse. Hyperinflation is a very rough time in between World War I and World War II. There are stories of people bringing a wheelbarrow of money to buy a loaf of bread.
Mike:Now whether that's true or not, I don't really know, but you get the idea.
David:Yeah. Yeah. Yeah.
Mike:K? Notice the bread still had its intrinsic value. They just had to use more fiat currency to buy it. Yep. When you're investing in actual investments, whether it's companies, whether it's real estate, whether it's gold, other assets.
Mike:And gold is not the only way to hedge against currency. K? Crypto is not the only way to hedge against currency collapses. People think, oh, that's what you do. That's just what you no.
Mike:It is one way to hedge against a currency collapse. K? Yeah. But don't think for a moment that just because you've got a lot of gold in your safe deposit box that you're gonna use that as the way to buy things in the future. You're not gonna shave off a little bit of your gold bullion coin and then say, alright.
Mike:Here's so many ounces here. I'm gonna buy that from you. That's probably not gonna happen. You're gonna take your gold, and you're gonna use it to buy a different currency or to buy back into the United States dollar at the new value. So let's put actual application in here and understand that if you state out of cash or cash equivalent vehicles, and you've put it into actual investments that have intrinsic value, whether it's gold, whether it's stock of a company, whether it's something like that, then you're able to hedge against inflation, currency collapse, and so on.
Mike:That's my bit on it. That's all the time we've got for the show today. If you enjoyed the show, consider subscribing to it wherever you get your podcasts. Just search for how
David:to retire on time. Discover if your portfolio is built to weather flat market cycles or if you're missing tax minimization opportunities that you
Mike:may not even know exist. Explore strategies that may be
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