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PDFby Jerry Robinson | FTMDaily Editor-in-Chief
HOUSTON, Apr 13
Over the next several days, I will be explaining my financial philosophy when it comes to the following:
- Savings diversification (Diversifying your liquidity)
- Investment diversification (Diversifying your investment dollars across a wide variety of asset classes)
- Income diversification (Creating multiple streams of income into your financial life)
In yesterday’s column, I focused specifically on the need to diversify your liquid savings. (You can read yesterday’s article here.)
I referred to this as the Diversified Six-Month Liquid Savings strategy, in short, DSL Savings™.
I concluded by giving you a sample DSL strategy that I personally use, and that was documented in my book, Bankruptcy of our Nation, which breaks your six month liquid savings into thirds – using foreign currencies, precious metals, and U.S. Dollar denominated assets.
Assuming that your 6 months of liquid savings equals $15,000, then this strategy would look something like this below.
• One-third ($5,000) in U.S. dollars (i.e. savings account, money market, cash-value life insurance, etc.)
• One-third ($5,000) in a stable foreign currency or a stable basket of currencies
• One-third ($5,000) in precious metals (i.e. gold and silver)
While using these three asset classes is not the only diversification strategy for your DSL savings reserve, I have personally found it to be particularly effective in protecting purchasing power. In fact, in late 2009 – early 2010, FTMDaily.com’s parent company, MakersGroup Financial, LLC (of which I am CEO), tested this strategy using historical data.
The analysts used the sample allocation strategy described above on the following time periods:
- A 5 year back-test (2004 – 2008)
- A 10 year back-test (1999 – 2008)
- A 19 year back-test (1990 – 2008)
They also had a control test for each time period that compared our DSL Savings™ strategy to a typical savings account. In this test, the savings were not diversified, but rather all savings dollars were placed into U.S. treasury bills receiving the 3 month T-bill rate. The purpose of the control test was to determine whether a person using DSL™ Savings would have accumulated more money over each time period than a person keeping all savings in a U.S. dollar-denominated savings account.
Our findings were completely stunning.
The first results you will see represent the control group, which used only Treasury bills. The relevant measure used in our study was the total return on savings after inflation. Also, all interest earned during a particular year was assumed to be reinvested back into the Treasury bills. The results are shown in the table below.
|
Time Period |
% Return on Non-diversified Savings (after inflation) |
| 2004 – 2008 | -2.99% |
| 1999 – 2008 | -0.49% |
| 1990 – 2008 |
13.18% |
Notice that the only positive return (13.18%) in the non-diversified savings strategy occurred in the 19-year time period, from 1990 to 2008. But the total return for the other two periods was negative.
How can this be if the rate of return for a T-bill was never negative?
Simply put… inflation. Inflation is a major eroding factor on money, and although the savings dollars in the non-diversified strategy are earning interest, these returns are counteracted by the effects of inflation, which actually causes the purchasing power of the savings account to fall below the original principal amount in real terms.
So how did our DSL™ Savings Strategy hold up under these same back-testing methods? Let’s take a look.
This next section of results, representing the DSL™ Savings allocation model, simply diversifies the savings account:
- One-third in T-bills
- One-third in stable foreign currencies
- One-third in precious metals
As in the first test, all returns of this separate test were calculated on an after-inflation basis. Additionally, the same time periods used in the control group were used in this test.
The results are shown in the table below.
| Time Period | % Return on DSL Savings™ (after inflation) |
| 2004 – 2008 | 44.71% |
| 1999 – 2008 | 79.31% |
| 1990 – 2008 | 68.09% |
As you can imagine, we were stunned at the results. We found that the return on DSL™ Savings is well above the return on undiversified savings in every single time period. For example, if we look at the time period of 2004 -2008, the return on undiversified savings is -2.99%, whereas the return on DSL™ Savings strategy is 44.71%!
Here at FTMDaily.com, we are working hard to create solutions for you during these difficult times of economic crisis. We invite your feedback and comments on how we may serve you better. Feel free to contact me directly at jerry@ftmdaily.com.
In The News Today…
1. RISE OF THE NEW WORLD: On Thursday, leaders from the some of the world’s fastest growing nations, known as BRICS (Brazil, Russia, India, China, and, for the first time, South Africa) will meet at a summit in Southern China to discuss global economic issues.
2. SHADOW STATS: Using the reporting methodologies in place before 1980, inflation hit an annual rate of 9.6 percent in February, according to the Shadow Stats newsletter.
3. TAXES IN FOCUS: With the debt ceiling debate just ahead and the 2012 Presidential campaign looming, President Obama prepares for a new round of calls for tax increases.
4. WEB TAX COMING? Democratic Senator Dick Durbin of Illinois wants to end the golden era of tax-free Internet shopping. Expect more debate after Tax Day is over.
5. BOGUS BULL MARKET: Stock prices are rising but buying volume is falling. Maybe it has something to do with that $8 billion per day the Fed is pumping in to the markets? See chart here.
Finally…
Donald Trump is no stranger to controversy. Now, Mr. Trump is taking on Islam. “Well, I’ll tell you what. The Koran is very interesting. A lot of people say it teaches love and there is a very big group of people who really understand the Koran far better than I do. I’m certainly not an expert, to put it mildly. But there’s something there that teaches some very negative vibe.” Watch the interview here.
Why So Serious?…
Its time to laugh a little. Here’s a sampling from some of the late-night jokers.
“A new poll shows that only 19 percent of Americans strongly approve of President Obama’s performance. The other 81 percent don’t own gas stations.” –Jay Leno
“President Obama said he misses being anonymous. He said that in the old days, he could blend in with all the other Hawaiian Barack Obamas.” –Conan O’Brien
“Four of Prince William’s ex-girlfriends have been invited to the Royal Wedding. Kate Middleton is having them seated in the front row of the “In Your Face” section. –Conan O’Brien
“Medical marijuana sales are now approaching two billion dollars a year. I had no idea that so many people had glaucoma. Apparently this is an epidemic.” –Jay Leno
Cartoon of the Day…
Until tomorrow,
Jerry Robinson – FTMDaily.com
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Jerry Robinson is an economist, published author, columnist, international conference speaker, and the editor of the financial website, FTMDaily.com. In addition, Robinson hosts a weekly radio program entitled Follow the Money Weekly, an hour long radio show dedicated to deciphering the week’s economic news.
Jerry Robinson
@ftmdaily
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Great show!
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