Three Unconventional Investments That Can Protect Your Money from a Looming $8 Trillion Crisis

Keith Fitz-Gerald Apr 20, 2018
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Today I’d like to revisit a topic we’ve talked about extensively in the past.

It’s a situation so severe that it will impact every investor when it hits.

Whether you have a pension plan or not doesn’t matter.

There is a very good chance that you and your money will get taken for a ride within the next five years if you don’t heed my warning.

Obviously, I don’t want to see that happen which is, of course, why I’ve got three very specific investment recommendations for you in a moment.

First, though, let’s talk about what this crisis is and why I believe it’s so critical that you take steps to protect your wealth immediately.

American Pension Funds Are an Unmitigated Disaster

The 2017 data is not yet available, but I can’t imagine the situation is much better than it was in 2016 when state pension funds took in $130 billion from employers and employees and paid out $214 billion in benefits – a net exit of $84 billion that year alone.

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People used to think that this was a problem somewhere “down the road” which was always inferred to be a few decades from now. That was certainly the political party line for decades, anyway.

Now, though, Bloomberg’s out with a new article backing my assertion that this is a “right now” problem that could surface within the next five years.

People ask me all the time how this could possibly be when the very same pension funds are setting aside assets, income, and net benefits directly from their paychecks?

To which I reply, “nobody ever went broke on accrual accounting.”

It’s the cash you want to look at.

A staggering number of pension plans simply don’t have the necessary cash on hand which means they cannot pay this month’s checks, let alone those 25 years down the line.

Take New Jersey’s state fund, for instance.

Bloomberg points out that the Garden State has approximately $78 billion in its pension coffers yet has to cover future payments with a present value of $280 billion. Simple extrapolation suggests that NJ has less than seven years of cash on hand if you were to freeze the state’s pension fund right now… and only 3.6 years if you strip out growth at the same time.

But, freezing is impossible. Politicians whose votes depend on keeping millions of hard-working people happy and distracted will go to the ends of the earth to perpetuate the illusion.

So, they’ll do what comes naturally by promising more services even as they cut budgets and implement still higher taxes on damn near everything and everybody. Living within their means would be a rational alternative, but I’m not aware of any politician who understands the difference and is willing to make such a tough call.

The situation is made doubly bad by the fact that current federal bankruptcy code does not allow states to declare bankruptcy, which means there will be protracted legal battles and constitutional arguments ahead… even as the cash I’ve just mentioned gets spent faster than actuarial types expect.

When I worked at Wilshire Associates decades ago, the bogey was around 8% a year in total returns for pension fund actuarial planning and investment allocation decisions.

That’s dropped to around 7 to 7.5% today which is still unreasonably high at a time when the average total return for a U.S. pension fund was 1.5% a year in 2016, according to a report from the 2017 annual report from the National Conference on Public Employee Retirement Systems.

Pension funds, incidentally, need 6% to 7% a year just to remain solvent so this not inconsequential.

Again, the numbers are hard to come by, but I’ve seen estimates suggesting that U.S. pension fund systems may be underfunded to the tune of anywhere from $1.8 to as much as $8 trillion.

The following states are particularly at risk: Michigan, Pennsylvania, Florida, Ohio, Oregon, Colorado, Kentucky, and Rhode Island, because they’re the ones most likely to run out of cash the fastest, according to Bloomberg’s research.

My own research suggests that Illinois, Arizona, Connecticut and, of course, California, aren’t far behind.

And the vast majority of politicians still can’t see the elephant in the room.

The number of retirees is rising faster than it’s ever risen before. There were roughly 121 million American’s working in 2007 when the Financial Crisis hit. Now there are nearly 126 million.

That sounds great until you realize that the number of folks claiming Social Security has jumped from 54 million back then to 66 million today.

More people are leaving the workforce and/or aging now than at any other point in modern history.

Three Ways to Position Yourself for Protection (and Profits)

Fortunately, you can do something to protect and even grow your wealth when the you know what hits the fan.

First, your best friend will be a properly structured investment portfolio built along the lines of the proprietary 50-40-10 model I advocate here and in our sister research service, the Money Map Report. NOT conventional Wall Street diversification models which fail when everything goes down at once.

While you’re at it, consider setting up self-directed SEP IRAs and Solo 401(k)s, if you can, because both allow considerably higher contributions than traditional retirement plans; in some cases even 8-10X as much. Check with a financial professional to be sure, but I’d be very surprised if you can’t derive at least some benefit.

Second, quality matters more than quantity. I am very choosy with my recommendations for a reason -the world’s best companies attracting capital are as unstoppable as they because they line up with the Six Unstoppable Trends we talk about frequently.

The last thing you want to do is find out the hard way that you’ve been speculating when it’s investing that will help you play offense. Being “in to win” is not just one of my mantras – it’s the path to profits because history is very clear that missing an opportunity is far more expensive than avoiding a short-term market pullback.

And, third, now’s the time to think about alternative assets… and I’m not talking about real estate, metals, or cryptocurrencies either.

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There’s a good case to be made for truly collectible assets like cars and motorcycles, both of which you hear me talk about a lot because they’re a huge part of my own life. Obviously, you can’t run out and buy just anything with wheels, so developing the specialized knowledge needed to make and insure a good purchase is important.

Early Porsche 924s are increasingly valuable at the moment yet still fun to drive, according to Hagerty (who specializes in classic car insurance). Just remember that the more you pay up front for a well-maintained vehicle, the less you’ll pay later to make up for deferred maintenance.

Music royalties are much the same way. Only here, you’re deliberately looking for an underappreciated asset class that could leave fully-valued stocks and bonds in the dust if pensions collapse. Believe it or not, the royalties can generate income that rivals even the best stocks and bonds over time. There are funds like BlackRock’s Alignment Artist Capital and AGI Partners’ Unison Fund that do the hard work for you.

Or, if you’re up for the hunt, consider visiting www.royaltyexchange.com, an online marketplace based in Denver, Colorado, where you can buy and sell music royalties directly. As of press time, there’s an auction for a blended catalogue of commercial and production music featured on popular TV shows and programs, like American Pickers and a Taco Bell Commercial, where bidding starts at $5,600 and the past 12 months of royalties stands at $2,485.

Barry White never sounded so good…

… especially at a time when people will turn to music for comfort!

Until next time,


Keith Fitz-Gerald
Chief Investment Strategist

2 Responses to Three Unconventional Investments That Can Protect Your Money from a Looming $8 Trillion Crisis

  1. Mike B says:

    Fourth is manage a tight personal budget and pay down debt. A paid off house and no debt is better than money in the bank as a hedge against this situation.

  2. Bill Johnson says:

    I am retired from the US Air Force and currently receive my military pension plus my social security. I note that you talk about state governments having a major problem meeting their obligations to their pensioners. I have not seen where you have mentioned anything about Federal pensions. Would appreciate your comments relative to federal pensions as well as the outlook for social security. My wife and I are in our mid-seventies and in good health, but reluctant to return to the workplace. What’s your take on the security of our pensions and social security? Thanks.

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