Wealth Building & Volatile Markets:
How to Supercharge Your Wealth - Amazing 3-Step Formula!

From the desk of: Keelan Cunningham
Date: February 22, 2012
Re: Wealth Building & Volatile Markets...

Markets volatility is a constant bedfellow of wealth building

Markets have been showing wild swings over the last month or so. The Dow Jones plunged 600 points one day then surged 400 points the next! Gold rises above $1,900/ounce and then slides back to $1, 840. Nail biting stuff! But, what should you do about it?

Markets volatility is a constant bedfellow of wealth building. Should you invest during a volatile market? If so, how can you grow and/or protect your money? Read on to discover this amazing 3-Step Formula!

Note: This information was accurate at the time of writing!! Markets will have moved on since so check the values yourself. That said, the overall tactics outlined below are typically valid during any volatile market.

#1: Stockpiling: Using Down to Go Up

“Stockpiling” is a term used by Phil Town in his New York Time #1 Bestseller, “Payback Time”. Stockpiling is a somewhat counter-intuitive, upside-down stock investing strategy -  you buy stock in businesses you love, and then hope the price will go down even further so you can buy some more. Sounds strange at first but the key here is simply to make sure the value of the stock is substantially greater than the price you are paying for it. The more the price goes down, the better it is for you as the average cost of your investment per share goes down.

The one and only secret to stockpiling is to make sure the value of the business is substantially greater than the price you are paying for it.  The key word here is value. You need to understand how to value a stock (using EPS, P/E Ratio, Minimum Acceptable Rate of Return etc.,) and give yourself a decent Margin of Safety.  

The spirit of  “stockpiling” is to only buy stocks in a business you’d be excited to own all of (if you could). Then you hope the price goes down so you can “stash” as much as you can afford at as low a price as possible. Beautiful!

#2: Cash is Trash, Get Some Metal

Nowadays people prefer gold in their hands to cash in the bank and who could blame ’em! Hedging against inflation with gold is a time-tested strategy used by investors. That said, you don’t need to buy bars of gold and bury them in your back yard (just yet!). However, everyone should have some gold and silver in their investment portfolio. Even as little as 10%. Why? Because the real value of cash is in rapid decline - inflation and a global banking crisis means you really can’t afford to leave large dollops of cash residing in savings accounts.

Also, currencies like the Euro and Dollar are on shaky ground. We’re in the midst of a global currency war if you ask me. Even the Swiss Franc, traditionally a global safe haven for traders, isn’t a great hedge right now, as recently the Swiss National Bank in an effort to protect their just set a ceiling on the value of the currency (first time since 1978).
So, gold and silver become apparent safe havens for anxious investors. Although knocking around the $1, 600-$1,800/ounce ceiling of late, Gold is predicted by some quarters to rise higher even as far as $2,500/ounce before the end of the year! If you don’t feel comfortable buying gold bullion in the form of bars or gold coins, then you can simply buy the SPDR Gold Trust (Tracker Symbol: GLD), the world’s biggest ETF tracking the price of gold.

Silver, which had been on an upward trend since May 2011 and hovering around $41-$43/ounce, has corrected recently to around $30/ounce. Gold (and silver) are in the midst of a massive sell off as investors try to cover losses in other asset classes. The price of Silver is often tied to the price of gold but Silver is the most volatile of all the precious metals. So be careful. When market sentiment eventually shifts regarding gold (and it will!) values can slide in the other direction faster than an ice cube down your back.  For those of you with an iPhone I recommend you download the Gold Price app otherwise check out their website (www.goldprice.org) for latest price and news on Silver and Gold.

#3: Savers are Losers: Repurpose Your Savings

I think hoarding your cash in a savings account for 2 or 3 years is a stupid idea...and why savers become losers. Saving cash is a stupid long-term strategy but a smart short-term tactic. Let me explain...

I’m a huge fan of saving as a key habit and tactic in building your wealth. Even if you’re a multi-millionaire already but you’re not saving at least 10% of your gross (or net) income; you are going to get your financial ass kicked if you haven’t developed the discipline and financial understanding behind saving.

Saving is the #1 financial habit to develop. Start with 10% of your gross, push this to net 10% if you can. The important thing about saving cash is to not let it sit in low-yielding bank savings account for more than 6-9 months. You can’t hide in cash.  You need to repurpose those savings into investments quickly. Why? Well, if you compare your net saving yields against average inflation rates you usually never make a dime!

Check out Dr. John Demartini’s FAST (Forced Accelerated Savings Techniques) - he proposes you increase your savings automatically by 10% each quarter! I’m a big fan of Demartini’s mindset and approach to money management and wealth building. What I like about this method is that it forces you to focus on your net cash flow (Net Income after Taxes and Living Expenses). So, you’ve either got to find ways of reducing your effective tax rate or increase your gross income...or both!!

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