Bankruptcy of America – Continuing the Game Plan

Yesterday I discussed the first five points of a personal game plan according to Jerry Robinson, author and economist. Today we will list the first five points, then look at his last, more controversial five points.

1. Admit that man cannot rule man.
2. Commit to Financial Education.
3. Create a network of Family & Friends.
4. Give to Charity.
5. Save 15% of your Income.
6. Build a 6 month liquid and diversified emergency fund. Most of us know about having an emergency fund and that it needs to be accessible. His twist is that just like you want to diversify your other wealth (retirement), you want to diversify this fund also. His general rule of thumb: 34% in U.S. Dollars (CD’s, Money Market), 33% in Foreign Currencies (Euro, Swiss Fran, Australian Dollar, etc. through ETF Purchases), and 33% in Precious Metals (Gold, Silver—coinage).
7. Get out of Debt. Specifically he means bad debt, like credit card debt or any variable interest rate debt. If you have to have debt, make sure it is fixed rate only. But he cautions that you should get your emergency fund done first.
8. Diversify Income. While in your working years, he believes you should have multiple income streams (minimum of two). One can be your main source, but you should have others. It could be from a hobby, 2^nd business, etc. According to Mr. Robinson, you never want all your eggs in one basket. Find a way to make other income happen.
9. Be cautious of Government Programs. He dislikes 401-K programs or anything to do with the government: the government gives and the government takes away. He believes taxes must increase, and the politicians eyes will fix on 401-K and other government tax breaks.
10. Invest Defensively. He believes hyper-inflation is coming, so your investments should take this into account. A model portfolio for him would be: 45% in equities, 15% in bonds, 38% in banks (CD’s etc.), and the rest in precious metals.

Wow. Different isn’t it? Personally I like my 401-K (it’s actually a 403-B but same thing) because my company matches – unless the tax rate exceeds the match I would still make out ahead. Also, I think his defensive portfolio will not get you very far. Only 45% in equities?–to conservative for must I believe. And why the 38% in banks?–I’m not sure, maybe will have to check out his book to see why.

As far as the liquid diversified emergency fund, I”m not up to 6 months yet, and will probably not get there for a few years. Maybe when I get a significant amount of it saved diversifying would be good. His point is that if you have everything in U.S. dollars and the dollar tanks or we have hyperinflation, your fund is wiped out, so you should diversify. Might not be bad to think about a little diversity, but ‘m not sure I would be as aggressive as his suggestion.

Well, there you have the seminar. It obviously game me something to think about. I don’t agree with everything he says (I never do with any speaker!), but it is good to get different perspectives. What are your thoughts? Will you change anything you have been doing?