Choose from the above menu.

But don’t overreach.

Never All Three at the Same Time

Its tough for anyone in our want it all, do it all, culture to make hard choices.

Back in the day, the operative rule was you could easily have one out of three, and if you were lucky…two.

And someday the rule may come back in force.

For now, consider yourself fortunate if you can have at best one out of three.

How Your Options Stack Up

• In their pell-mell rush to safety, investors are piling into Treasury Bills, at nominal yields of one half of one percent. Or less. Virtually no yield, but absolute safety and liquidity.
• Stocks in freefall have no safety or yield. Just enough liquidity so the scared money can be shaken out.
• Junk Bonds have yield. No safety. Some liquidity, but at a steep price.

Gold, surprisingly comes close to having all three. Not a yield in the dividend/interest sense of the word, but an annualized rate of return better than almost anything recently.

Safety, in the sense that Gold always has universal value and marketability.

Liquidity was not easy until the emergence of the gold ETFs (Exchange traded funds), who now rival sovereign nations with their vast holdings.

I still can’t warm up to Gold as an investment. Long term, it still lags core inflation.

Yield Will Make a Comeback…

When the current crisis subsides, yields will return along with liquidity. Safety will still be a concern…it just won’t be the only, overriding concern.

Yield will also need to be redefined. I prefer the concept of total return, which incorporates both gains and dividend/interest income.

…As Will Unrealized Capital Gains

The world has been turned upside down in the past 30 days, and the tab we have run up will be gargantuan. What happens when they take away the punchbowl?

Taxes will go up no matter who is elected. Which means that unrealized capital gains will again be fashionable, on the principal that you make a much slimmer target in profile, rather than taking a bullet head on.

• As wealth goes into hiding, look for clever advisors to package investments that defer the realization of gain for years into the future.
• You can do it on your own. A long-term capital gain on a well selected index ETF can be postponed for your entire life span, with your heirs picking it up on the stepped up basis after your demise.
• If you have a family business, you can grow it internally by plowing back the re-invested income, and again use that clever death-as-the-ultimate-tax-shelter gambit.

But high salaries, interest, dividends and realized gains will be efficiently and ruthlessly harvested by the tax collector.

Bling and excess will become decidedly unfashionable.

Stealth Wealth will be the next defensive posture. It’s high time to sell the boats and planes and McMansion.

Move fast. Stay low.

After the excesses of the next New Deal, wealth will one day again come back in style.

After the revolution comes the restoration.

Posted: 10|28|08 at 6:20 am. Filed under: stock market, taxes, wealth.
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