The best Investment that you can make
Financial Security: 2
The best investment you can make is to educate yourself.
What is the difference between Money & Currency? Have
you ever wondered?
I guess it is the same to most of us. Well then, they are not.
Currency is a
medium of Exchange.
It has few essential characteristics:
- It is a medium of exchange
- · A unit of account
- · Portable
- · Durable
- · Divisible
- · Fungible (interchangeable)
Money is the same
as all above + it is a store of value over a period of time.
Now if we see the currency notes in your wallet, it is just
as all that we described above, but it has no inherent store of value. To
understand things better we look back into time and history.
Our forefathers started trade with barter system. This was
followed by precious metals like gold and silver. However it was disorganized
as the pieces had no specific size or volume. This was followed by the age of
Gold and silver coins. And following which came the present fiat currency notes
and coins.
The Fiat currencies were previously backed up by precious
metals like Gold. However over time with the establishment of Federal system in
the US, the Dollar is no longer backed by Gold. Its just a piece of paper with
no actual backing. Why do we still use it and its holding its value? We believe
in US Dollars with faith that the United States is the most developed county in
the world and that their currency cannot fail. So it is actually based on
belief and confidence and nothing more. But in reality, its just a piece of
paper and there is no inherent value to it. You will get a better insight of how
folly that belief is, if you look into the US debt burden:
With respect to the Indian rupee, we believe that every
rupee is backed by an equal amount of gold that is deposited with the Reserve
Bank. Correct?? WRONG!!
The difference
between Currency and Money:
Money must be a store of value and maintain its purchasing
power over long periods of time.
To explain things in
an even easier manner lets take the following example:
The year is 1978. Tom and Dick are friends and just out of
college, in their first jobs and looking for brides. Both of them get married a
year later. Both their wives deliver offsprings a year later. Tom has a son, he
names him Harry. Dick has a daughter, he names her Sally.
The year is 1980, while having a casual discussion in the
hospital corridor, Tom and Dick decides to keep Rs 1000/- from their savings in
a locker for their newborns future. Tom keeps Rs 1000 in his safe locker, while
Dick goes out and buys a sovereign of Gold with Rs 1000 and keeps it in the
same locker.
Years pass by. Harry and Sally grow up to adults, join college, get jobs and life moves on as usual. Years later in 2016, When Harry met Sally, thats when they discuss
about what their parents had kept for them in the locker. So Harry’s share of
what his father kept is still there, Rs 1000/- and with that he finds it
difficult even to take Sally out for movie in a multiplex and a formal dinner.
Whereas Sally’s share of 1 sovereign of Gold is worth Rs 21360!! That’s a
whopping growth of 2036%.
Now you would want to argue that Tom never invested his
money anywhere, that it grows. That is when I have to remind you that every
piece of currency that the Government has printed is supposed to be backed by
equal worth of Gold in reserves! So to be precise, Rs 1000/- in 1980 should
have had 1 sovereign worth of gold in RBI reserves. The situation here is not
that Gold has increased in price, it is actually fiat currency that has lost its value
by a hell lot in these years, and it keeps on happening.
So if you are looking for an asset/ money: its nothing but in
precious metals.
So in my investment list:
Silver
Gold
Now you would obviously wonder why Silver
is placed above gold? If you look back into history, for ages silver’s value
was between 1/12th to 1/15th
of that of Gold. That was when Gold and Silver were considered as money. But if
you look at the present value, Silver is valued at below 1/50th of
that of Gold, roughly 1/70th or less now. Silver prices are
manipulated and are intentionally kept low. The Silver to USD chart hit all
time low in the last year and it is now on a gradual uptrend. However it is
still low. Silver is finding use in electrical, electronic devices, cellphones,
computers, electric lights, literally everywhere. So a large amount of silver
is being spent comparing to the amount that is mined. You probably wont have a
commodity that is running out like Silver. If silver comes back to the original
10:1 ratio, one ounce of silver will be priced at $ 1500. So you might just
require like 1000 ounces of silver to buy a palatial home.
I was astounded by the fact that though
silver prices are like rock bottom, buying silver was not that cheap. Physical
silver commands a premium over its market value. It is actually not very easy
to buy silver bars or coins as it is not available with most jewelers. The
store of silver is less, its just that it is not known to all. There comes a
brief period in history where the opportunity comes around to secure your
financial freedom, but not many are fortunate to grab it. This is not going to
last forever. When the silver run comes, it will rise out of the ashes like a
phoenix and it will not be in your reach anymore.
I suppose if you buy physical silver for
about Rs. 300,000-400,000/- and keep it,
you might probably be able to buy a villa in near future, say another 5-7 years
from now. As weird as it may sound, such
things do happen and its just a matter of time till it is proven.
Gold and silver has been store of value for the last 5000
years, that we have historical data about and it still continues till date and it
is going to be the same or even better in the future considering the Fiat
bubble that we are in.
The third asset that I am going to talk about is Cryptocurrency.
3. Cryptocurrency.
Obviously not many are going to accept that it has any of the
inherent properties of money that we were talking about in the beginning of
this blog. And that presumption arise out of the ignorance of what is happening
around you.
If you look back into history again, we see this pattern of
changes that happened over time.
We as humans evolved through:
Barter System – rocks and metals –
precious metals – fiat currency/ paper money – plastic money
(credit/debit/forex cards)- digital and online transactions. So the change is inevitably coming. It is
just as to when we adapt to it. If you don’t adapt yourself , you’ll just be
pushed into it. Everytime something out of the regular or new pops up, we tend
to rebel, rebuke. We are quite adamant to accept and adapt to change. Mind you,
we are people of a country where strikes were conducted to abolish the use of
computers, as it will lead to loss of jobs for the masses!
Going through all that I have written above once again, I
wonder how many of my readers will take this advice seriously and put a bit
effort in securing their future? I am not of the sorts who say- “Let us see who
has the last laugh.” But I am reminded of one of the sayings of Mahatma Gandhi
with which I end this blog.
Click for first part of this blog: Financial Security : 1
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