What is most corrosive about your concerns about monetary devaluation?

I am concerned about this concept called the debasement of the currency.

Humiliation simply means making something less and less valuable, and this series of actions is less clear to some people. In the past you could have a gold coin, but the government can add more and more impurities to the gold coin and while it still looks and feels like a gold coin, some of those in the know would realize that the gold coin is actually worth less.

So a depreciation of a coin means that meaningful actions are being taken to make a coin worth less and less.

Does it have to do with inflation? I think so.

If your currency becomes less valuable, you can buy fewer things with it, and you have to pay more of that currency for it.

The worry is that all fiat currencies will be devalued even more, and that’s even worse. Perhaps a country like Singapore, which demands its currency be stronger and have impeccable fiscal health, will not engage in such deliberate action.

The Swiss franc and Singapore dollar are damn strong.

I wonder how many people realize that by stroke of luck they were born on this little island that is doing so well.

And how much of their financial mental model is based on a currency that strong. I think this is important. I once asked an advisor for someone who is retiring: should the standard advice be to invest or hedge against the currency in which he or she is retiring?

What happens if you want to retire in Turkey?

That advice will still apply, but your prospect or customer may find it quite challenging to do so, compared to holding their money in a stronger currency. Years and years of weakening their currency would make them worry and look for something stronger.

But if you, as an advisor, live in a country with such a stable and strong currency, would you empathize sufficiently with the customer? What’s more, is that still the technically correct advice?

I mentally ended that conversation with more question marks than answers.

This word humiliation may not be that popular right now (as far as I can see), but this will be one of the concerns, among the many concerns that my readers, friends and our potential customers will have.

I want to highlight one of the concerns, because if you have fewer years in the market, or more years, but fail to build good mental grids/frameworks, you think the answer is binary.

Buy gold or bet cash.

A few years ago it might have been buying bitcoin or depositing cash.

But now that cryptos are not doing well, people have the impression that things are not good. Now their impression of gold is better.

I tend to think the correct answer is:

1. Deploy assets that have some good long term economic engine of return.
2. You don’t have to put just one damn thing in there, just be diversified.

The first is a tenant of Providend’s pillars when considering adding something to our portfolios. A column should be looked at more as a qualifying considerationand not the main reason why it ends up in our wallets.

A currency is just a medium of exchange.

What we ultimately need to worry about is looking at it over a 20-year period: Is our total net asset base (your assets minus your liabilities) growing over time? in any currency.

There is real growth la. Your purchasing power is retained.

I think the problem with many is that they spend so much time deliberating on that one or two things where they have to put their entire $4 million out of $6 million into.

But is there really one thing? or two things?

There are more, right?

This is a chart from Western Digital.

You may have their hard drive in your computer. Almost 300% in the past year. This is in USD, but if I deduct 6% of the depreciation, it should preserve your asset value, right?

This is a chart from TCOM or Trip.com.

You may have booked hotel or flight tickets with them.

16% in the past year. After 6% depreciation of the USD only 10%. Not very good right?

But it still retains some value, right?

Anyway, I think of companies and pull them out to show you.

Each of these companies is engaged in some real business, earning real profits per share, and most likely the sources of income are highly diversified. One year of earnings may be tough, two years may still be tough, but if earnings per share rise over the longer term, the price should follow suit, especially if the companies show good shareholder returns (dividends and share buybacks).

Over the past 15 to 20 years, the USD has been up and down, up and down, against the SGD. This is not humiliation, but currency fluctuations. But from 2002 to 2011, the depreciation of the USD was only one-way.

• 2002: $1 USD converted to $1.80 SGD
• 2011: $1 USD converted to $1.22 SGD

Every time the USD weakens against the SGD for a year, as it did last year, many people think it will be a one-way weakening over a 30-year period. The correct answer is even more uncertain because you imagine the people who lived between 2002 and 2011 and hedged all their USD. ​​How much cost will that absorb if the currency relationship just bounces around for the next fifteen years?

The investor in 2011 is damn sure that by 2025 the USD will be $1 USD and $0.70 SGD.

That’s why I call this… one of the uncertainties you face as a retail asset manager.

I added up the ten-year annualized returns of the MSCI World from January 1, 2002 to December 2011 in different currencies:

Damn shit right?

We bet those of you who followed some of my recommendations will feel terrible about what you’re watching. If you convert the rate back to the Singapore dollar, virtually no return is possible over a period of ten years.

Instead of just the MSCI World, I’m going to throw out a bunch of indexes over that same ten-year period.

They are all in terms of SGD:

If we merge different portfolios, there will be things that do well even after a USD depreciation of 3% per year. And if you look at some of these things, your portfolio is probably not positioned in them right now.

It’s so easy to ask the question: do we really need small emerging markets ETFs?

The answer is that we don’t even know that the next fifteen years will be anything like the last fifteen years, or the fifteen years before that. There will be people who want to give me a very spicy argument: “Kyith, it’s different now. Just look at XXX, or YYY, it will never happen again. ZZZ will definitely do this if AAA happens.”

Each of us will have varying degrees of understanding as to whether these things will happen, but ultimately they will all come down to… varying degrees of uncertainty.

We will not know the extent and pace of the changes, or even what the changes will look like; these are all uncertainties.

Perhaps what I find most corrosive in a way is thinking about concentrated positioning, which is what they should be putting more and more into. The ebb and flow of the market ensures that you keep looking at that allocation question again and again.

If you have maintained just enough liquidity, but keep your assets diversified into different assets that have good long-term economic return factors, you should do well. In the short term, there will be ebbs and flows. I can’t tell you how these assets will perform well during a ten-year currency devaluation (as an example). Even if I tell you, I might be completely wrong!

Same as any advisor who tells you to position yourself this way or that way.

Divide into risky assets and keep diversifying. When you diversify, the uncertainty also becomes easier to live with because you reduce the weight of each “bet.”

In the end, it probably works out better than fearing volatility and keeping everything in cash.

Finally, the same index returns, in SGD, but extended to today:

If you want to trade the stocks I mentioned, you can open an account with Interactive real estate agents. Interactive Brokers is the leading, low-cost and efficient broker that I use and trust to invest and trade my investments in Singapore, the United States, the London Stock Exchange and the Hong Kong Stock Exchange. Lets you trade stocks, ETFs, options, futures, forex, bonds and funds worldwide from a single integrated account.

You can read more about my thoughts on Interactive Brokers in this Interactive Brokers Deep Dive series, starting with how to easily create and fund your Interactive Brokers account.

Kyith is the owner and sole writer behind Investment Moats. Readers tune in to Investment Moats to learn and build stronger, more solid wealth foundations, how to pursue a passive investing strategy, learn about investing in REITs, and the basics of active investing.

Readers also follow Kyith to learn how to plan well for financial security and financial independence.

Kyith worked as an IT Operations Engineer from 2004 to 2019. He currently works as a Senior Solutions Specialist at Insurance Start-up Havend. All opinions expressed on Investment Moats are his own and do not represent the views of Providend.

You can view Kyith’s current portfolio herewho uses his Free Google Stock Portfolio Tracker.

His favorite investment broker is Interactive real estate agentsallowing him to invest in securities from various stock exchanges around the world, at very low commission rates, without custody fees, near spot currency rates.

You can read more about Kyith here.