Wealth Creation in 2021 – Things That (should) Make you Go Hmm
Wealth creation in 2021 is about to look quite different to anything you may be used to when it comes to real estate and alternative investing strategies. In this article, which comes after the bloodbath seen in the markets post US election dramas, you’ll gain valuable insights into what’s around the corner.
I had to think long and hard about the headline for this article and as I sat down and began to reflect on the events of the past couple of weeks, the one thing that came to mind was the hit song by C+C Music Factory back in the 90s called “Things that make you go Hmmmm…”.
Some of you might remember it, and as meaningless and ridiculous the song was, it was one of those things that actually does make you go “Hmmmm…” about many things. Another similar song in the same sort of a category (as in it makes you wonder and say “yes” to a lot of what’s being said through the song) is Ironic by Alanis Morisette (this one I actually do like). Have a listen… for a quick trip down memory lane…
I’m not going to go to the US elections because if you have the ability to separate the bullshit from the real shit, you would already know what’s going on there. So no point digging that hole again. It’s a royal mess either which way you look at it.
The media coverage, however, disgusts me even more than what’s actually happening down there. It’s a shocker and I want to, once again, reemphasise the need for the Fifth Column to rise up – no other way to put it.
Dropping interest rates & the death of cash returns
I’m sure you’ve been hearing lots about the continued fall in interest rates across most developed countries. Australia, however thinks its citizens are toddlers. On the 28th of October, 2020, the Reserve Bank of Australia said its “best guess” is Australia’s recession is over. So why did you drop the OCR from 0.25 to 0.10% RBA? You think this is a game… don’t you!
The woke media will argue that RBA’s statement is based on the September GDP growth (best guess), which would end the 2 quarter drop (required to suffice the technical definition of recession), with September quarter coming back positive. So its well and good that a technicality is used to tell people that the recession is over, when in actual fact it is FAAAAAR from being over.
This is the same RBA that tried to influence how private companies report housing market data earlier this year.
So… don’t be naive.
At the same time, housing prices are rising almost everywhere.
You have to sit back and admire the uniqueness of the stupidity of the people that are buying properties in this environment, pushing house prices by double digit percentages across the board. I have tried to say it so many different ways… its the SMART money that’s selling to the idiots still looking to buy. However, people that only understand property and think that real estate is the only way to create wealth will have a big surprise soon enough.
Meanwhile, the SMART money that’s cashing out right now is not putting that money back into the housing market. That money is going to “other”, much more lucrative asset classes – namely the capital markets, alternative assets (crypto, metals, peer to peer to name a few) and the commercial property space. For the “have-nots”, that’s terrible because the propping up of the housing market is pushing that first home farther and farther away from most young families.
If you’re a first home buyer, trying to get onto the property ladder, I don’t know what your plans are or how long you’re looking to keep up the struggle.
There are better, smarter ways of owning your first property, if only you’re willing to put in the work and make some effort.
UK Covid Spending Tops 2 Trillion Pounds
Meanwhile in the UK, they’ve spent close to 2 Trillion Pounds already and the shit is nowhere near normal by any stretch of imagination. Naturally, they’re going to try to recoup some of this massive sum, most likely by increasing capital gains taxes.
However, people in the UK should know better as to where they should be putting their money right now and if it was me, that place wouldn’t be Her Majesty’s Kingdom (of ruins).
But you know what amazes me like nothing else? The sheer amount of misinformation by the media in how they put a “positive” spin on virtually anything. I really admire that ability as much as I feel sorry for the people that fall for it.
Pfizer comes out saying that its vaccine trials “indicate” that its 90% effective and without any visibility into exactly when those vaccines will be ready and whether the logistics will work out in delivering those hundreds of millions of doses everyone has already ordered, the markets go on a rally. Just a positive spin on a vaccine is enough to build confidence that everything will be all right?
What the media doesn’t disclose is that the candidates that are being used for these trials are all young, healthy individuals – not the people on whom the vaccine will actually be used. It would be the elderly and those most vulnerable that will get the vaccines first… right? Well, that’s not your 20-something, super healthy folks that these vaccines are being tested on.
But… the media says this is good news. So everyone accepts it and moves on toward the bliss of night.
Negative Rates and Cash Yields Dwindling
Central banks are asking retail banks to prepare for negative interest rates. Interestingly enough, negative OCR doesn’t mean your mortgage rates go negative (which would be like the bank paying you to hold a mortgage instead of it being the other way around). The rates that will go negative are the term deposit rates – of course… the savings of uninformed, mostly financially illiterate folks that will be charged to keep their money in the bank account. Even if they’re not charged, the returns will be near zero for almost everyone that has a term deposit of any form of savings in the bank.
If its only a few hundred or a few thousand, then you probably weren’t banking on that money for your lifestyle. In which case, it’s a moot point for you. Or is it? Wouldn’t you want to put that money to use instead of letting it sit in the bank, just for a sense of security?
And for those that had over $100,000 in those accounts, well, you’ve got a real problem. If anything, you’ll probably be making no more than $5,000 a year during the hay days, but now… now you’re returns are likely to be nothing more than $1,000, after all the checks and balances. That’s a net 1% return on capital. Are you happy with that?
Yesterday, while driving to a meeting, I was listening to New Zealand’s biggest talkback radio show and the hosts (Simon Barnett and Phil Gifford) were talking about how returns on term deposits are so bad. I was shocked to hear their views on how 5% was such a great return on $100,000 and how that would be so good. I couldn’t believe my ears as to what I was hearing. It was really annoying to hear such naivety on national radio.
SMART money doesn’t get out of bed for anything less than 5% a MONTH and here we are… the biggest talkback show basically painting the picture that 5% per year is the bees knees. I’d give them the benefit of the doubt that they probably aren’t the most savvy people when it comes to money and finances, definitely not on a global scale… but still… Mainstream is so systemically sick its beyond words.
There should be more emphasis on educating people about the various ways that money can be made. Don’t settle for shitty returns and use your lack of knowledge as an excuse to do so.
Take the time and make the effort to learn how to get ahead because the SYSTEM isn’t going to give you any free passes in this case.
I was recently speaking to the head of Finance at a luxury car dealership who mentioned that they’ve never been busier and cars are skidding off the yard like never before.
I asked him what was driving the demand for luxury cars at this time?
He said, its people that have cash in the bank, which is not giving them returns, so they’re going out there spending it on “toys”. Really? People have enough cash to go out there and buy brand new luxury cars for toys, just because they’re not getting enough returns from the bank?
Forget the cash part… I would be asking how these people earned that cash in the first place. Lotto? Inheritance? Got lucky? Because clearly, they haven’t taken the time to educate themselves about wealth creation it would seem.
Add to that the fact that a vehicle is a depreciating asset, and you’ve really got to start putting these people in the “you amaze me” basket.
Meanwhile, the SMART ones are beginning to recognise that there’s a way to get into the commercial property space without having to borrow from the bank. Remember, commercial property is where the REAL money is in the real estate game. It moves faster, it offers better cap rates (depending on a few factors) and many other advantages. However, getting into commercial property isn’t cheap. The lending criterion are different and so are the rates and terms of such loans.
This is where Real Estate Investment Trusts are such a powerful way to get involved in the benefits of commercial property, without the debt burden or risks associated with it.
If you haven’t yet, then you’ve got to register for the free webinar where I demonstrate through a couple of live examples, how dividend income from REITs can provide a strong cash on cash return in comparison to anything else that’s out there in the market (in the same category).
Many people feel a bit scared of the share market and that’s understandable given the devoid nature of financial education in our countries.
However, if you don’t adapt and change your thinking to upskill yourselves, then how do you plan to survive, let alone, get ahead in the near future?
Don’t let something you don’t know be the driver for not wanting to know.
Fear is healthy as long as you never allow it to overtake your rational thinking and ability to reason.
Wealth Creation in 2021?
Well, most of the developed world is already quite far left leaning. New Zealand, Australia, Canada, United Kingdom and now most likely the US of A (yikes!!!). What do you think is going to happen to give you any confidence that your money is safe in the bank making sub 1% per annum?
For those that don’t have stacks of cash in the bank, perhaps with the interest rates being as low as they are, is now the time for you to unlock some of that equity in your assets, take some cash and work on a solid strategy to multiply it 2 or 3x over the next few months? Maybe.
I’m no one to tell you either way. But do take the time to think about this because the time is coming where if you are not financially excellent in your knowledge, you’re unlikely to be financially prudent in your reality.
MAKE AN EFFORT!
The difference between false memories and trues ones is the same as it is for jewels; it is always the false ones that look the most real, the most brilliant – Salvador Dali
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