This book is a re-publication of a blog I started in the depths of the Great Recession in March 2011. During that time, as I agonized over investing, saving and potential job loss, I developed an investment philosophy I dubbed the “Financial Fortress” and wrote a series of posts about it along with other posts about specific asset classes, investment strategies and related topics. My two biggest successes have been in real estate and precious metals. During the Great Recession, I made some aggressive moves, using retirement savings, to purchase distressed condominiums in Orange County, California. In addition to enjoying positive cash flow while I owned the properties, I have just completed one sale and have a second one in escrow, doubling my money in five years. I also made an aggressive move into silver (US Silver Eagle coins) to watch them triple in value, at which time I sold individual rolls on EBay and kept the rest for future appreciation. The essence of the Financial Fortress is that as savers and investors, we need to first have a strong defense before we can have a strong offense. As volatility in world markets seems to worsen each year and booms/busts become more intense, preservation of capital is paramount but so is finding opportunities to leverage what we have in order to grow our wealth.
What Inspired You to Write Your Book?
Since I started my career over 20 years ago, I have seen a few major market cycles that have wiped out my retirement savings. During the Great Recession, I was inspired to develop my “Financial Fortress” investment philosophy which is designed to protect your wealth through even the most extreme market cycles.
The Financial Fortress has 5 components as follows:
1. Cash/Investment Debt forms the base. Adequate levels of cash are needed to protect against uncertainties and for new investment opportunities. Investment debt (“good debt”) allows leverage (other people’s money) to buy assets that will generate additional positive cash flow – i.e., a mortgage for an investment property or a personal loan to start a business or make a new investment. “Bad debt” like credit card debt, auto loans, etc. should be paid off as soon as possible. If you have cash earning 0.5% or less in a bank, you can’t afford not to pay off “bad debt.”
2. Insurance (Liability, Life and Property) – form the next layer. Insurance provides protection against accidents or lawsuits and also protects your real and personal property in the event of a loss. Life insurance protects your family in the event of death and also provides a nice retirement planning vehicle.
3. Businesses and Investments form the two components that are outside the fortress; these are like watchtowers, places where you can conduct a business or outside investment with other investors, but they are isolated from the main fortress for liability reasons; these will typically be held in limited liability entities, such as corporations, LLC’s, LP’s, etc. Everyone should have a business, even (and especially) if they work at a regular job – something you are passionate about that has the potential to make money. You never know, you may need to quit your day job to run your business! What business are you in?
4. Stocks, Bonds, MLP’s and Retirement – form the next component of the fortress. This is where paper assets, including stocks, bonds, master limited partnerships (which are excellent sources of cash flow with commodity upside); 401(k) and IRA accounts are held. The taxable stocks that pay dividends and bonds provide a source of positive cash flow to replenish the base of the Financial Fortress.
5. Hard Assets (Real Estate, Gold/Silver, Commodities) form the top of the fortress. These assets provide long term protection against inflation and in the case of real estate and some commodities, a steady source of positive cash flow to replenish the base of the Financial Fortress.
Nick Reichert was born in the San Francisco Bay area and grew up there and on the Island of Kaua’i in Hawai’i. He graduated from the University of Hawai’i at Manoa and started his career in public accounting at Arthur Andersen in 1991. A Certified Public Accountant, he has worked in the real estate industry for the past 12 years focusing on finance and accounting for all types of development activities.
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