Chris’ note: Inflation is the highest it’s been since 1982. The Fed’s seven rate hikes this year have barely slowed it down. And nothing wreaks more havoc on your portfolio over the long term than inflation.
That’s why, all week, I’ve been showcasing our best strategies and insights for conquering its wealth-destroying effects.
Today, I look at an “old money” secret for preserving wealth through inflationary cycles. Not just for a lifetime… but for generations…
It’s a time-tested way to beat inflation…
Before I took the helm at The Daily Cut, I worked on an unusual project.
It was an advisory Legacy Research cofounder Bill Bonner headed up. It focused on helping wealthy families hold on to their wealth.
I don’t mean for just their lifetimes… These folks were looking to hold on to wealth for generations.
When I asked them how they preserved wealth over the long haul, the answer was often “a third, a third, a third.”
That refers to the tradition of dividing a long-term family portfolio three ways among gold, fine art, and land.
This “old money” secret won’t bring you overnight riches. But then, it’s not supposed to…
It’s meant to keep your wealth intact not just during recessions and crashes… but also during wars, revolutions, and currency devaluations.
And as you’ll see today, you don’t have to be born of billionaires to build your own “old money” portfolio… and inflation-proof your wealth.
Gold, art, and land are “hard assets”…
Regular readers will know what I mean. But if you’re just joining, a hard asset is something that’s hard to produce more of relative to its existing supply.
This makes it inflation-proof.
Gold is expensive to dig out of the ground. And there’s only so much of it on Earth.
Fine art is scarcer than gold… and harder to produce more of.
Artists die. This ensures they can’t create new artwork to boost existing supply.
Land is scarce, too. As Mark Twain put it, “Buy land. They’re not making any more of it.”
Each of these is a good inflation shield. And together, they’re a great way to make sure you avoid a steep loss in buying power.
So let’s dig deeper into each…
The first traditional shield against inflation is gold…
We’ve been urging you to own some gold since we created the Cut for paid-up Legacy Research subscribers in the summer of 2018.
Back then, an ounce of gold would set you back $1,215. Today, the same ounce costs $1,740.
That’s a 43% gain.
That’s just the start of the good news for gold investors. Here’s Bill…
For at least 5,000 years – gold has protected against all the funny things that happen in markets… including inflation. But I wouldn’t be a bit surprised if Americans don’t own much gold. I suspect they’re going to learn the hard way.
I’ll admit… gold hasn’t been a great performer this year.
It’s down about 3% so far this year.
But that’s still a lot less than the roughly 17% loss for folks in the S&P 500… and the 29% loss for the Nasdaq.
So on a relative basis, at least, it’s held up well.
One hassle-free way to buy gold is to pick up shares in a gold-backed exchange-traded fund (ETF).
The most popular is the SPDR Gold Trust (GLD). It’s the largest gold-backed ETF in the world. But it doesn’t store allocated gold in your name. That means the ETF-provider or custodian is the legal owner of the gold… not you.
A better option is the Sprott Physical Gold Trust (PHYS). This ETF stores gold bars allocated in your name in vaults at the Royal Canadian Mint. That makes you the legal owner of those bars.
An even safer route is to buy physical gold yourself…
Bullion – or “common” – coins are a good starting place.
You can typically pick up these coins from a dealer for $50 to $100 an ounce over the quoted gold price.
These are different from collectible coins, which carry higher premiums over the quoted gold price.
If you’re just starting out with bullion coins, stick with 1-ounce South African Krugerrands, Canadian Maple Leafs, or American Eagles.
Each is instantly recognizable anywhere in the world. Pull a 1-ounce American Eagle out of your pocket in any major city, and you can turn it into local cash in minutes.
Gold bars are more suitable for large amounts of gold.
Bars made by respected refiners are the safest to buy. So stick with bars made by PAMP, Johnson Matthey, Engelhard, Credit Suisse, and Heraeus.
Your second inflation shield is fine art…
For centuries, the ultra-wealthy have used art to grow their fortunes and increase their status.
And it continues to keep them ahead.
Since 1995, for instance, famous painters’ art has appreciated in value at a rate of 14% a year. That compares with an average annual gain, including dividends, of 9.5% for the S&P 500.
Better still, art can go up in price even when the stock market is crashing. That makes it a great way to diversify your wealth outside of stocks.
It used to be only the extremely wealthy who could afford to invest in fine art. But now, you can access this inflation-beating asset class without having to spend millions of dollars to acquire art.
We looked at it earlier this week. It’s through a platform called Masterworks. It allows you to buy shares in iconic, multimillion-dollar paintings… without the multimillion-dollar price tag. And it’s an easy way to get exposure to artwork in your portfolio.
Masterworks has bought more than 130 works of art for more than $500 million since entrepreneur Scott Lynn founded the company in 2017.
And since then, the value of its art portfolio has risen at an average rate of 15.3% a year.
That’s an inflation-beating return… even at today’s inflation rate of 7.1%.
Normally, you’d have to get on a waitlist to join Masterworks. But Daily Cut subscribers can skip the waitlist here.
Your third inflation shield is land…
Like fine art, this can be tricky for most investors to acquire.
Land is expensive. And it typically requires a lot of management.
That’s why I recently spotlighted Gladstone Land Corporation (LAND).
Our experts over at Casey Research have been recommending it at their Strategic Investor advisory as a way to get exposure to farmland.
Farmland is among the best types of land to own because it’s productive and throws off a yield.
But running a farm is hard work. Most folks don’t want to do that.
That’s why we’ve zeroed in on Gladstone.
It’s a REIT – or real estate investment trust. REITs are companies that buy real estate… collect rent… and pay it out to shareholders in dividends.
By law, REITs must pay out at least 90% of their taxable income to shareholders. Most of them pay 100%. They’re a great way to get exposure to land through the stock market.
Gladstone owns and operates specifically income-producing farmland.
That’s not how most “old money” families do it. They tend to own land directly. They can afford it.
But owning shares in Gladstone is a better deal in three important ways…
You don’t have to farm the land yourself. You can buy and sell REITs anytime you want. And they offer more diversification than a single farm.
Gladstone owns 169 farms, spanning 115,000 total acres across 15 U.S. states. Its land is valued at over $1.5 billion and is 100% leased.
It even pays an annual dividend yield of 8%.
So take a leaf out of wealthy families’ playbook… and add gold, fine art, and land to your portfolio today.
They’re time-tested ways to protect your wealth against inflation – long enough for your family to enjoy it for generations to come.
Editor, The Daily Cut