By Joshua Saul – Arabian Pure Gold
How do the rich spend their money and can we learn from them to achieve success?
Wealth is relative. Someone with £10,000 in the bank would be considered wealthy compared to a person with no savings, but not wealthy in comparison to a millionaire. The definition of wealth is an abundance of valuable possessions or money.
But wealth is not necessarily just dependant on making money, but also holding onto it. It’s the ability to generate enough wealth to outweigh life’s innumerable liabilities, and then make it work for you so it doesn’t get eaten up by inflation or snatched away by a market collapse. Lots of people make money, but not everyone manages to hold onto it. We all need to protect and preserve our wealth while also risking it to make more money, and spending it to enjoy life. So what do the wealthy spend their money on and can we use their methods to become wealthy ourselves?
Their sensible approach to the use of income is to split it into spending, investments, savings and protection. Each needs to be considered and managed to maintain and grow wealth.
Spending
Spending on things of quality and value isn’t the preserve of the very rich. Beyond the necessary liabilities of life, we are free to spend our wealth enjoying life. So, unless you’re a monastic minimalist, you’ll still go on holidays, buy a car, some jewellery, a watch, and if you have more than a little disposable income perhaps a second property or holiday home.
But spending doesn’t have to be entirely frivolous. Holidays are important because they create memories, but for more material spend, taking into consideration the quality and longevity of a purchase is a way of making it more valuable. In our throwaway culture, sometimes it’s best to spend a bit more on a piece of gold jewellery or a more expensive watch that will retain its value. That way even by spending on pleasures, they become a small but not insignificant longer-term investment.
Investments
Larger investments are important to increase wealth and grow income faster than liabilities. These investments can be in many forms including stocks and shares, equity ISAs, buy to let mortgages, premium bonds, a pension and physical gold. The wealthy always have an investment portfolio. The portfolio will be diverse, with a mix of riskier assets and lower-return but safer options. They will include pension investments which reflect the age of the investor (riskier high returns for younger people, and low-risk investments for security and surety for those closer to retirement).
Stocks are also a very popular investment and the returns, even the safer index-linked mutual funds will likely outperform the long-term low-interest cash savings environment. But the stock market always carries some form of risk. Global economic crises, uncertainty, recessions, banking instability, or other unexpected events could trigger a ‘correction’ which is market speak for a nosedive. And that could seriously affect any wealth accumulated and invested in stocks. Equally, buy to let mortgages are only as good as the tenants they attract and the health of the property market. Furthermore, the introduction of increased stamp duty (3%) for second property owners and the removal of tax relief for buy to let landlords have dampened property as an investment owing to the risk and prospect of paying more in tax than the property generates in income.
Investing in gold is a prudent part of any asset portfolio. Gold mining stocks or gold-price tracking exchange-traded funds give exposure to the gold price but are still exposed to the vagaries of the stock market. Investing in physical gold is the most direct way to benefit from its value without market or counterparty risk (the risk of a banking collapse).
Savings
Savings are a necessary way to ensure our financial security, whether in retirement or for unexpected or larger purchases we might need, or want, to make. Most people will already have a workplace pension of some sort, and by paying taxes are essentially saving for a state pension too. Savings accounts are another popular method of saving money, but since the interest rate has remained so low for so long, it’s hard these days to beat inflation and not watch your savings eroded daily. Cash ISAs are at least tax-free, but the rate of interest is still very low.
Despite the low interest, at least cash ISA’s or savings accounts aren’t in danger if the market becomes volatile. If your cash savings are below £85,000 they are protected by the Financial Services Compensation Scheme (FSCS) which eliminates the counterparty risk of a bank going bust. However many debate the integrity of such a compensation guarantee especially if the government making it doesn’t have any money. Furthermore, the compensation guarantee is governed by the EU savings Directive which is a part of EU law. It is unclear how our departure from Brexit may affect the validity of such a directive. You will find that the rich leave very little in bank accounts not least because of the counterparty risk but because the rising cost of goods and services climb at a faster pace than the interest you get from the bank and therefore by leaving your money in the bank it is becoming worthless.
Other ways to save include buying physical gold, which can be both VAT and capital gains tax exempt in certain instances (some UK gold coins are legal tender so don’t attract CGT). Gold has been used as legal tender or a store of wealth for hundreds of years, steadfastly retaining its value even as the price of goods has risen. And while physical gold doesn’t attract any interest, the gold price fluctuates which could mean an upswing in your savings pot especially as uncertainty tends to drive the gold price higher.
Protection
Making money and keeping it is not the same thing. Putting a suitcase of bank notes under the bed for 50 years will seriously erode its value because you will still have the physical money, but you won’t be able to buy as much with it. And putting it all in the stock market risks losses if they take a tumble.
Most people have some form of life insurance to protect their dependents in the event of their death. Others will have some type of income protection too. Meanwhile, the wealthy approach to maintaining wealth is to hedge investments and assets with other assets that gain in value while others decline.
Physical gold is a key measure of protection against political and economic turmoil that could affect your wealth, from stocks to property to pensions. The price of gold tends to be inversely proportional to the value of the US Dollar, so can be used as a hedge against concerns about currency devaluation, and it also usually increases in value when the stock market declines as more people flock to safe-haven gold when times become volatile.
Gold standard
Gold in its various forms makes its way into every category of wealth. Its beauty makes it a desirable discretionary spend, its reputation for acting as a hedge against inflation makes it a strong investment, putting a monthly amount into gold allows you to grow your savings instead of your savings becoming worthless, and it provides protection against market collapse by preserving or growing its value in times of uncertainty.
The smart money
A lot of very wealthy well-informed people are buying gold for all of these reasons. Billionaire hedge fund manager Ray Dalio has been a vocal supporter of gold for several years. He suggests owning between 5% and 10 % of your asset portfolio in gold and has backed his claims with substantial investments in the yellow metal through his hedge fund.
Egyptian billionaire Nagub Sawaris put almost half his substantial net wealth into gold last year, and many investment banks are equally bullish. Bank of America Merrill Lynch expects gold to surge in 2019, while in January Goldman Sachs raised its forecast for a rise in the gold price this year. Central banks have also been adding to their gold stores in a nod towards the volatility of the global political and economic landscape as well as gold’s inherent value retention.
How to invest in gold
So, if you’re following the smart money, how do you go about investing in gold? Jewellery is abundantly available from reputable retailers, and if you want gold bullion and know what to buy and how much, reputable online gold sellers are a quick way to buy.
If you are looking to invest in gold to add to your portfolio, diversify your pension pot, or hedge against market risks, you will likely need some guidance along the way. Some of our clients will quite bluntly ask us if gold is a good investment? Whilst others want some sort of a guide on how to invest in gold for beginners. questions such as is gold a good investment? Everyone’s wealth is relative, and what’s right for one won’t necessarily be right for another. Gold investment companies can talk you through the options and explore your specific requirements and circumstances. Reputable companies will have a buy-back guarantee for when you decide to liquidate your gold assets and will offer storage options so your gold is secure and doesn’t impact household insurance (unless you insist on putting it in a suitcase under your bed).
Making money and preserving wealth are two different things and the latter needs to be managed carefully so the effort of making it isn’t squandered in the spending. Prudent investment, the pleasure of some quality purchases, and the right approach to spending, saving, investing and protecting your wealth is a valuable lesson to learn from those who’ve made money and kept it.
Arabian Pure Gold – We serve to help those protect their wealth
Arabian Pure Gold offers a curated investment service which means they will discuss clients’ needs to ensure they are offered the right product. Their consultative approach, full certification, storage options and buyback guarantee give investors peace of mind that they have made the right choice for their assets.
Through direct communication with clients, Arabian Pure Gold understand who is buying and why (compared with online gold sellers who don’t have the same depth of insight). CEO Josh Saul gleans the underlying motives of his clients and is a thought leader on trends in retail investment in physical gold, the process of buying gold and the ways people choose to manage and maximise their assets and investments.
