How To Invest In Alternative Asset Classes (Like Gold & Silver)

Hey there, real quick, before we jump into the episode, listen, if your earnings treadmill hasn't set you free yet, running faster won't either. Listen, hustle without principles just going to burn you out. So here's what I want for you. I want you to join me for my money machine experience. Live it is three free trainings. Deep dive into how to escape the treadmill and build a money machine that actually works for you. All right, grab your spot here by going to moneymachinelive.com and I'll see you in the free training. How to invest in alternative asset classes like gold and silver. And how do you understand why assets that preserve value are very different than assets that create value? See, here's the fact that surprises a lot of people. Gold has had entire decades where it went absolutely nowhere while businesses were quietly compounding in the background. See, that doesn't mean that gold is broken. It means that it has a different job. And today I'm going to break down what actually drives the price of gold, silver, even crypto. And why they don't generate cash flow. And how confusing store of value with growth strategy can quietly derail your financial plan. This is building your money machine, where we help you master your money, eliminate financial stress so you can live a life of choice. Because earning more doesn't make you free. A money machine does. And I'm your host, Mel Abraham. And after 30 plus years as a CPA, an entrepreneur, a money mentor, and someone who's walked the financial freedom journey himself, I have seen what works, what doesn't work, and how you use the right tool for the right job. And so if you're ready to figure it out for your portfolio, let's do this. All right. How do you invest in alternative asset classes like gold and silver? And more importantly, how do you think about them correctly so they actually support your wealth instead of quietly sabotaging it? Because if you stick with me here, you're going to walk away really understanding what actually drives the price of gold. What's going on with gold and silver? You know, why are they called a store of value? And what does that truly mean? And how gold, silver, and even crypto and some other alternatives difference from investing in businesses. So we'll talk about how they fit into your investment plan, your financial plan, and where you need them. Okay? This is not about trashing alternatives. This is about putting them in the proper job description, the proper role on your financial journey. So if you ever thought, shoot, I should be buying gold right now, in fact, I just Literally got a text from someone about that. Or is silver just cheaper than gold? What do I do? Or everyone I know is going into private deals, and maybe I'm missing something. See, you're not behind. You're just missing the right context. And once you have it, this gets a whole lot simpler and a whole lot calmer. So here's the thing. I want to be really, really clear before we go any further. I am not anti gold. I am not anti silver. I am not anti alternative assets, but I am anti confusion. I have gotten into alternative assets at the wrong time, couldn't get out lots of things. You'll get some of my lessons here. Because most people don't lose money because they're irresponsible. They lose money because they expect assets to do jobs they were never designed to do. And that's how smart people make avoidable mistakes. Now, the first thing to understand is that there's two engines to investing. And this really becomes the core of. Of what you need to look at. When we're looking at investments, everyone I talk about today runs in one of these two engines. And once you understand that, investing stops feeling emotional, starts feeling mechanical. So let's talk about engine number one. This is what I call supply and demand assets. These are assets that move in price primarily because of how much exists and how badly people want it. That's it. Okay? More buyers come in, it pushes the price up. If more sellers come in, it pushes the price down. That's all. This includes things like gold. This includes silver. It even includes crypto, collectibles, those kinds of things. Art. Okay? These assets do not produce anything. There is no revenue. There's no earnings. There's no reinvesting into operations. There are no operations. There's no real compounding. They don't wake up in the morning trying to make you richer. They just exist. And it doesn't make them bad, and it just makes them real and honest. And when you understand that that's what drives the price, the flood of people coming in or the flood of people going out. Supply and demand. It's not driven by growth, operations, or cash flow. Then you can put it in the proper perspective. But the next distinction, I think explains why so many smart people still get this wrong. And that is engine number two, value creation assets. These are assets that actually sell products and services. These are companies. They generate cash flow from operations. They reinvest profits into growth. They innovate, they create, they scale. They compound over time. And there's a tangible business behind it. You can look at Think Apple, think Google, think, think Microsoft, think Nvidia. All of them are producing something that you can actually touch, feel and see. They generate cash flows and they generate growth. Business grow because they create value internally. They don't need necessarily supply and demand. They don't need fear, they don't need hype, they don't need perfect timing over long periods of time. Value creation be beats value speculation every single time. And when you have something that's operating, that has a history, it becomes a little more dependable and predictable. Because what's being priced in. When we look at the price of a stock, what is being priced in that stock is the expectations of growth in that company and how me as an investor can realize that growth either by the value of the company going up or the company paying me a dividend from its profits, a share of its profits, or doing a combination of both. Okay, this is the, the, the, these are the two engines that can drive it and you, we can classify these investments in one of these two engines and that will give you an idea of how these investments should be used. All right, now let me pause right here for a moment because if you're listening and you're thinking, okay, okay, but where do I fit in all of this? And you don't know where you are on your financial journey and what assets make sense, we're going to get there. But one of the things that will help you with this is my financial freedom quiz because it'll allow you to understand where you are in which financial freedom zone you're in, what to focus on and what to do. It's totally free. You'll get a chance to go and answer a handful of questions. It'll give you a report. What are you focused on? What's your next steps and how to, how to go through it, get you the stage. So I'm going to hook it up here, but you can go to yourfinancialfreedomquiz.com and take it for free. All right, so now let's just jump in and go one step further. Let's talk about gold and silver correctly because you'll hear people say, well, it's a store of value, but what the hell does store of value mean? Okay, when people hear store of value, they think it goes up. That's not what it really means. A store of value is something that tends to retain purchasing power over long periods of time, especially when you have inflation rising or the currencies weakening or the confidence in the money systems drop. This is why? During times where we see higher inflation, you'll see people moving to gold and silver because it will store value. If we look at it in plain English, it doesn't necessarily make you richer. It helps prevent you from getting poorer by preserving purchasing power. Gold isn't necessarily about winning the game. In my opinion. Gold is about not losing ground when money itself starts getting diluted. And so I totally get it. Think about inflation and currency debasement, okay? In the sense of when I say currency debasement, they create more money, which makes it less valuable. So inflation isn't necessarily prices going up alone. Inflation is that your money is buying less. Okay? And this idea of currency debasement is that more money is created, debt grows faster than productivity, and every dollar represents a smaller slice of real value. So in either one of those, what happens is that our ability to buy goes down. Gold tends to hold up in those types of environments because you can't print gold. It's globally recognized, it's not tied to any single government, and that's why gold is considered this hedge. But I want you to understand that gold and silver, it doesn't necessarily make you rich. Yeah, those people that bought it a couple years ago, it, it's run up, it's at an all time high, it's made the money. But when people start to shift into other investments because they feel more comfortable, more confident and everything, and they move out of gold back into stocks and equities, what's going to happen to the price of gold? It's going to drop. It's supply and demand. Same thing with silver. Now is it going to drop as far as where it came from? Probably not. But I just want you to understand how this plays out. See, gold doesn't make you rich, but it helps prevent you from getting quietly robbed by inflation. It may not be an accelerator, but it's certainly a shock absorber to doing things. Now, when we look at this, and remember I said, yeah, gold is not a growth asset, here's the structural reality. Gold does nothing with itself. There's no reinvestment, there's no productivity gains, there's no scaling it, there's no earnings growth, hence it doesn't necessarily grow. Gold rises when people flee and seek protection. Not because the value is more, but the desire is, is more. That's reactive, that's not proactive. And that's totally fine as long as you don't expect gold to behave like a business, because it's not. Now silver, on the other hand, is the same thing, but A little more dramatic. Okay, here's what I mean when I say silver is more dramatic. I'm describing the structure of it. One, silver has a smaller market, meaning that there's less money needed to move prices, less capital needed to move the prices. And so, so that creates a larger swing when you look at percentages. The other thing is gold is mostly monetary and psychological, but silver is monetary and industrial. Silver is used in electronics, in solar panels, in medical equipment and manufacturing. So silver reacts to fear and inflation, and it also reacts to economic growth and industrial shifts and demands. So it can have a much more volatile feel to it. Sometimes those forces of inflation, fear, and economic and industrial demand, they align. Sometimes they fight each other. That creates the volatility. So if you look at silver even deeper, and you look historically, what happens is that it rises faster than gold in strong rallies, but it falls harder when the momentum breaks. Silver is effectively gold with mood swings. All right, there's more upside potential, but there's more emotional whiplash. Okay? Think of, think of your financial life like a car for a moment. Stocks and businesses, that's the engine. Gold, silver, that's the shock absorber. Okay? Silver is more of a. That's a stiffer suspension, you know, shock absorber. You feel every bump. Then there's these ideas of, of beyond gold and silver. Alternative investments. You'll hear this term bantered about. Those are specialty parts. You don't build a whole car out of them. You, you want to have a core to the, to your vehicle, your wealth. Okay, Because a car's made entirely out of shock absorbers. Doesn't go anywhere. You have to have the engine. You have to have the other things that come into play. So let's just look at the transactional reality of this, too. Real life, not theory. People love to say gold is liquid. On paper, yes. In real life, no. Okay. We have to store it. I have a friend who's got a lot of gold. He's got a big safe in his house storing physical gold. You have. In real life, you have storage issues, you have insurance issues, you have dealer markups, you have bid ask spreads. It is not as easy. You're not just going to walk into a grocery store with a bar of gold and say, I need to buy a carton of milk. Now, in times of craziness, the gold will help you, but still, it's not as fungible as other types of assets. Now, ETFs can help where you get gold or silver or commodity type of ETFs, but then you don't actually own the metal. You rely on the markets being open. And you now introduce another level of risk called counterparty risk in the sense of, now you have a go between in there. But let's face it, the idea of liquidity in an asset, it only matters when you need the money. Okay, so those are some of the things when it comes to gold and silver. What about the other alternative assets that maybe you see? Okay, when we look at other alternative assets without, I'm not, I don't want to oversell them, I don't want to oversimplify them. I want you to get a basic understanding. I want to tell you what the pros and cons are. And the first one is private equity. Because I see this a lot right now being promoted. Private equity, what is it? It's ownership in private companies. And look, private companies is the core to our economy here. You know, entrepreneurs and building things. But private equity isn't some, you know, some treasure chest. Think about what happens when you invest in private equity. And I've done this and it has been, these are some of the experiences I've had. One, you have long lockups, five, 10 plus years. In other words, you cannot get in and out. If I want to buy some Google, I can buy it today, I can sell it literally within five minutes. I can't do that with private equity. Once you're in, you're in and you're in for a ride. Which leads to this other characteristic is that they're highly illiquid. There aren't markets that you can actually go and sell these just like the stock market as easily. They're just not liquid means that you can't get out. And in fact, when you go into some of these, you sign an agreement that typically locks you in where you can't sell it. Okay. The other thing that I think these private equities have is they have much more vulnerable outcomes. Dispersion of outcomes is what we call it wider range. And by and large what you're investing in in these kinds of private equities is a management team more so than the business because it's going to be heavily relied on management. Now I invest in private areas. I invest in angel investing. This is something that I do, but it's a very narrow, narrow sliver of my portfolio. And then I think the other thing is to realize that when with private equity, you don't control timing or exits, you're along for the ride. So it's powerful for investing. If you have excess capital, once you have your critical mass of your portfolio in place, then we put it in there. When we talk about the wealth priority ladder, it's up, up at the top, one of the last kinds of investments you make. Because I want to make sure the core is taken care of first. Okay. Because if you get into it too early, these become dangerous if you need access to the money, because you can't get access to the money. Okay. Leads me to the other one that I see a lot is hedge funds. Hedge funds are basically pooled investments that use, in many cases, complex strategies. And one of the challenges here with hedge funds is the fee structure is usually a lot higher because of the complexity and because of the management necessary with it. Two, they're designed to manage risk and pursue specific strategies. And the reality is, if you look at hedge funds, they get mixed results. Some are great, most are mediocre, and some are horrible. And we need to realize that they're not magical, they're just different tools. And so it's just something that if you want to get into them, I wouldn't do it until it's later in your journey. You've got critical mass to your portfolio. Like I said before, the third kind of asset class here in these alternatives is what I call syndications. Syndications are groups of investments into a specific deal. A lot of times that's real estate. And so you're. When you do something like this, it's a syndication. Again, it's illiquid. You can't get out. You're putting money into a specific deal, but what you're really putting money behind is the management team, the sponsor that's running it. And the idea that they can make this successful because the returns in syndications depend on execution and timing. And your capital, once you put it in, is locked up until the end. It takes a while. And then the last one I think that I want to just touch on is what I call private placements. These are direct investments in private deals. Now, a lot of times there's less regulation, there's limited transparency, and there's very little liquidity. That's when someone comes to you and says, I've got a deal, you want to invest in it. Now, there's some rules around it. So they're. They're tremendously higher risk in doing that. Now, I'm not saying that any of these you shouldn't be in. It's just when you use them and how you use them, they're there to supplement a critical mass portfolio that you already have in place. Okay. They're not what I would say. They're not foundational assets. They make sense after your core investing is solid, after your retirement is. Is being fully funded, after, you know, you have your liquidity in place and that you've reached this critical mass. And, and so. And I think that the reality is that the regulators understand the risk because these aren't available to everyone. They're riskier, they're less regulated, they're harder to exit. And so often when you are trying to get into some of these alternative investments, they say you must be what's called an accredited investor. And I'm not going to go through the accredited investor rules, but it's a matter of certain levels of net worth and income to assume that you're a little more sophisticated of an investor. But I can tell you that there's plenty of people with a lot of income not very sophisticated. So I don't know about these rules, but that's what they're using in an effort to try and protect the innocent, if you will. Because they look at it and say, we have to put rules in place because these things you can lose money on in a faster way. You end up locked in. There is no secondary market. It's not liquid for you to get in and out of. And so access doesn't necessarily mean that you're superior. It just is supposed to represent responsibility. So that's the thing that I think we need to understand is that they have a place, but they may not be right at the beginning. Now, let me just touch on crypto. I don't want to get into a crypto battle here, but I think the blockchain is a fascinating technology, and it's there, but as an investment, I think it has the same structural issues as gold. No cash flow, no earnings, no internal compounding. Price rises if demand rises. Price falls if demand falls. That's my opinion. That's the math. Okay. Because of that, I look at it and say it's a supply and demand asset. There's nothing behind it. No utility, no business model, no cash flow, no dividends, no growth, no revenues, no profits, nothing. Okay, but here's the line to remember. Wealth is built by owning systems that create value, not by hoping someone else pays more later. And so alternatives like this can support a portfolio, but they shouldn't replace the foundation. Okay, so let's clean this up. I think you start by building growth assets first. ETFs, index funds, real estate, those kinds of things. You use alternatives for diversification, not salvation. That's Number two. Number three, don't confuse complexity with intelligence. Complexity creates friction. Friction creates risk. Risk creates loss. Number four, liquidity matters more than people admit. Remember, when you build a money machine, the idea is to create a machine that can produce cash flow to support your lifestyle so you can live a lifestyle of ch. If you invest in assets that aren't giving you cash flow that you can't get in and out of, then how do you support your lifestyle? That's the challenge. Number five, if it doesn't compound, then I limit it. Gold is fine. Silver is fine. Alternatives are fine. Going all in, though, that's not investing. That's guessing. Okay? So I hope that this helps. I hope that you start to look at things in the proper thing. Remember, I'm not saying that they're bad. I'm not saying to avoid them. I'm saying to put them in the proper place with the proper job as the proper tool when you have things in place, all right, My job is to make sure that you have an unshakable financial foundation to build your money machine on so you can have a life of choice, a life that you have the ability to live by your own design. And so when you start out, follow these rules. When you start to look at alternatives, look at where they. They have a place in your world. And should you be doing it at this time or down the road? All right. All right. I hope that this helps. I hope that you found it. I would love to hear your thoughts on it. I'd love to hear your perspective or your questions. Do me a favor, send me a dm, send me a comment and let me know. And while you're there, hit the subscribe button and a thumbs up. YouTube likes it. And you know what? It makes my heart feel good, too. All right. Till I get a chance to see you on your journey, on your path to financial freedom or on my road as I'm out there speaking. All right. Always, always strive to live a life that honors you. See you in the next one. Thank you for listening to the affluent entrepreneur show with me, your host, Mel Abraham. If you want to achieve financial liberation to create an affluent lifestyle, join me in the affluent entrepreneur Facebook group now by going to melabraham.com group and I'll see you there. Foreign and that's it for this episode of building your money machine, where we help you learn how to master your money, eliminate financial stress, and live a life of choice. If you found this valuable or helpful to you, here's what I'd love for you to do. If you do me a favor, go to Apple, Apple Podcasts, or wherever you're listening to this podcast and rate and review the show. 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