«-- Letter Re: What is a "Gray" Front Sight Course Certificate? | Main | Note from JWR: --»

Two Letters Re: Request for Investing Advice

Hello Jim,
First off, thanks for an excellent book/resource in your novel "Patriots". I read it in the last week and it has had a profound effect on me. I also felt the writing was quite good, being entertaining and educational at the same time. Thanks for it!

After reading your book (and listening to my brother, who has been talking about TEOTWAWKI for some time now), I did finally do some things to prepare in the last week, but I wonder what the next step is for me.

First off, I invested about $80 to make some shelving in a storage closet downstairs that had previously been filled with junk.

Then I went to the local Wal-Mart and bought canned and dry goods: about six each of peas, corn, refried beans, tuna, pinto beans, stove top stuffing, rice, ramen, breakfast cereal, and so forth. I made sure to only buy stuff that we would eat anyway. I guess I’m not quite sure to buy whole grain and a mill, because truthfully unless we get to TEOTWAWKI, there’s no way we would use that stuff. Anyway, total cost for all this food was around $180, and it filled about 2/3rds of my shelves (the [shopping] cart was full though). I figure this is a good start, and now I feel if there was a “run on the grocery store” we would still be able to live for one to two months.

I also have lots of guns of varying calibers, including 8 rifles and 5 handguns, and probably 500 rounds of ammo total, approximately 300 of these are cartridges for my 9mm Glock which I just purchased new a few months ago.

Based on my brother’s advice, I did buy 12 one-ounce gold coins within the last year, and have those here in my house. After having read your book, I did go trade one of those coins for silver the other day, so I now have approximately $900 in silver as well.

I have decided to allocate all of my tax “stimulus” check towards preparing for the future. Our stimulus was approximately $700 (I made too much money to get the full amount), so I have about $400 left. So here’s the question: What do I spend this $400 on? More silver? More food? More ammo? I assume your opinion is that the price of all of these is going to continue to go up, but I hate to buy ammo when I see how doggone expensive it is now!

One more question: Between my wife and me we have a substantial sum invested in retirement funds, mostly in low-load mutual funds through Vanguard. I am wondering about taking a portion of this money and putting into a money-market account so that when/if the stock market crashes I will retain some value. However, I am also aware that inflation would eat this money alive, if we get into heavy inflation. I would be interested in your opinion on this question as well. Thanks, - Mr. H. in Wyoming

JWR Replies: Your tax stimulus check is probably best spent on additional useful tangibles such as food, first aid supplies, and ammo. Despite what appears to be the high price tag, the price of ammunition will likely continue to go up. Don't think of it as ammo going up in price. It is more a function of the dollar going down in purchasing power.

With the recent collapse of the credit market, US stocks are now quite precarious. The dearth of credit is shutting down the economy. But regardless of whether or not there is a stock market crash or if US companies continue to limp along, US stocks certainly won't have the same returns that they did in years past. So it is best to divest yourself of nearly all of your stocks and stock mutual funds. IMHO, the only stocks that are presently worth holding are in the energy sector and precious metals mining, and even then those should be the minority of your full portfolio.

At the present time, after paying off any outstanding consumer debt (such as car loans or credit cards) I'd recommend that you then reinvest the remainder of your mutual fund divestiture, as follows:

40% in inflation indexed US treasuries (TIPS),
20% in a global currency fund (to minimize your dollar exposure),
10% in additional food storage and various preparedness gear (first aid, communications, et cetera.)
10% in money market account
10% in silver mining and energy stocks
10% in barterable tangibles (as I've described in my blog--things like guns, common caliber ammo, and full capacity magazines)

However, your priorities my differ so you might want to adjust those ratios. The important thing is insulating yourself from inflation, and a the likely collapse of both the stock market and the US dollar in foreign exchange. Because of the global credit collapse, we are on the verge of a depression that could be as bad or worse than that of the 1930s. Be ready. Get out of stocks and minimize your US Dollar exposure.

If and when inflation jumps to double digits, even TIPS won't be a safe investment (since government figures under-state inflation). At that point you should then sell your TIPS and close you money market account. Invest that more heavily into tangibles--both barterables and retreat-worthy land. By that time, the real estate market will be in cardiac arrest, so there will be some genuine bargains. Living in Wyoming, you might consider some of the locales I mention in my book "Rawles on Retreats and Relocation", such as The Big Horn Basin, and the Star Valley. Look for properties with good topsoil and plenty of water. Be sure to buy land that is on defendable terrain and that is well-removed from any major highway.

Good Morning Mr. Rawles,
I found SurvivalBlog about a year ago have been hooked since, [your novel] "Patriots" was inspiring and awesome.

I would like your opinion regarding 401(k) retirement funds. I am 49 years old and have a fair amount of 401(k) funding, I understand any early withdrawal would result in about 30% tax and loss. I know you don't have a crystal ball but would 70% not be better then a 100% loss in a situation of a full economic collapse. I know these are very hypothetical questions but I have come to respect your opinions, and could fast-track my preparedness if I cashed out early. - John V.

JWR Replies: First, ask your company if they offer a "Self-directed 401(k)" option. If so, you can put your money in a contrarian ("bear") stock (and stock shorting) fund, and some energy and silver mining stocks.

Is there any chance of rolling over your 401(k) into an Individual Retirement Account (IRA)? If so, you can get a US Gold Eagle IRA. (The folks at Swiss America can set one up for you.) I have heard of some people "trapped" in very limited 401(k)s that have switched to independent contractor status, changed jobs, or even gone so far as to briefly quit their jobs and then get re-hired, just to free up their 401(k) funds to accomplish a rollover without penalties. (Some of these approaches, of course, would require having a sympathetic boss.)

If none of those approaches will work in your situation, then at least re-direct your 401(k) out of stocks and stock mutual funds and into a money market fund. (Most corporate retirement fund plans allow at least a small portfolio "menu" of investment approaches.) But I would not recommend doing anything so radical as taking a 70% loss.

Permalink -