Q. I divorced last April, and received a significant amount of money in our divorce settlement. I have two daughters, ages 15 and 19. What are your thoughts about investing the money that was my share of my long marriage, to help me be independent and ensure my daughters have a safety net?
Carla (Northern California)
Carla - How to reinvent oneself financially following a divorce is a huge challenge and can be quite scary. Your are in good and numerous company, and it is also a situation many men find themselves in. It may be a more common experience for women, given that couples tend to divide the familial roles into economic (income producing) and emotional (child-rearing) units. Specialization and dividing labor is a good thing, except that if the family disintegrates the participants can find themselves lacking critical skills that the other spouse or partner provided. This cuts both ways, as I've noticed some men are at a loss how to deal with children when they no longer have a mother running daily interference.
What follows are my views, so take what resonates and leave the rest. I am not an investment advisor and am neither licensed nor qualified to give professional financial advice. Moreover, our website (which includes much more than the Enlightened Divorce Blog™ like commentary on statutes, tips, FAQ's, and a growing library of dissolution and family law forms) is educational and not 'one-size' fits all. As to financial matters, before you pull any triggers I recommend you find a qualified investment advisor to educate you on money matters.
What you should do in investing your divorce settlement proceeds depends upon your goals, and views of where our national and global community is heading in the coming years, not to mention the opportunities and limitations of those dependent upon you. I have an intuitive and rational sense that the coming years are going to be challenging, and may represent a "peak everything" in terms of environmental, population, geo-political, and economic issues (blah de blah blah). Your view may be different. Some think that is a dark or unfortunate perspective, made all the harder to accept where one has children whose lives will extend into the future beyond their own. One must be authentic to their own views because if one adopts someone else's they will not be able to 'stay the course' under pressure - which can upend their investment decisions and cause one to panic, when contrarian logic implies the opposite choice (a good rule is to be suspicious of the crowd, which often becomes a collective organism driven by greed and fear). Anyway, change does present opportunity if one makes the correct call including the ability to better protect those you love.
Therefore, my advice in many ways is conservative - I would never recommend to a client, particularly one who is far enough in life that they cannot recover the wealth they now have if they blow it up, that they speculate in anything or try to catch the stock market bubbles. Conversely, time may prove that it was a bad idea to leave all one's money in FDIC 'protected' banking institutions, at absurdly low interest rates. Instead, maybe diversify your divorce settlement, keeping in mind the likely burn rate of what assets you have and when you reasonably expect you may need to access them. Do you anticipate college expenses, medical treatment, or periods of unemployment or under-employment?
The beauty of true diversification is that it represents a "middle way" that hedges and insures against big swings in any direction, at least in terms of the value of your overall net asset portfolio. So here are some recommendations, to be evaluated as just as one more chiming opinion in the cacophony of advice that we folks must navigate in settling upon our own conclusions:
- Determine your net worth and conservatively value your holdings. Know what you have - it is amazing how many people don't start with an honest appreciation of their circumstances. Resist savior projections, i.e., that some future event or best case outcome will save you.
- Evaluate your income stream, whether from support (spousal and child) or your expectations for employment and present income and how long you can reliably expect it to continue as-is. Discount assumed future increases or windfalls. Err on the less fortunate future circumstance by being realistic.
- Do not incur new debt, unless you must, and ensure that any debt that you incur is charged at the lowest available interest rate. Pay high interest debt off as soon as you can, and under no circumstances incur any debt that costs you more than 7% annually. If you can, retire or avoid all debt entirely so long as it still leaves you liquid for extended financial emergencies.
- Think about whether we as a nation are going into an inflationary or deflationary period. If inflation, and assuming you have ongoing or new income, it pays to have low interest debt as a portion of your overall estate because in time you will back that debt back in less valuable dollars, and it will be the lender who absorbs the hit. That's assuming our current interest rate climate, which appears to likely remain as is for the next year, although a lot of economists are projecting that interest rates cannot stay at their current low rates without destroying not only growth, but existing wealth. If you think we are going to suffer deflation in coming years, then we are all pretty much hosed unless you hold certain 'hard assets' and can weather the coming storm.
- Don't loan money to anyone, except maybe your kids and then understand you will never see it back - don't loan anything that would risk the basic cash flow that you need to meet your own current and anticipated needs. If you cannot survive financially, and particularly if you are the solid core center of your children's lives, those who depend upon you financially will suffer in exponential proportion to your suffering so you job includes remaining financially stable.
- Consider placing up to 10 to 20 percent of your net worth in gold or silver bars or coins, assuming that you don't expect to need to liquidate them for two to three years. Favor gold over silver, but have some proportion of each. Take physical possession of your gold and silver, but place it in a safe deposit box, or a safe that ONLY YOU have the combo. Many precious metals pundits (especially at societies' fringes) will tell you not to trust safe deposit boxes for fear of government confiscation (which Pres. Roosevelt indeed did do in the 1930's) and take physical possession of your precious metals. While gold and silver ETFs carry much larger premiums have greater risk for reasons that are beyond the scope of this blog (I provide some links below to help you judge it for yourself) and therefore one line of thinking is that you need to have it on hand, I do not subscribe (yet) to the Shit Hits the Fan (SHTF) scenario. However, we should all consider whether we will find a seat if the world unfolds in a dance of musical chairs. But, my non-expert opinion is that at current prices (Gold = $1,300/ox and Silver = $20/oz) possibly you should be acquiring some at those rates, or at least on dips below them. Gold and silver as stores of value have outlasted every form of fiat currency, and if you are person for the long-haul and are interested in financial history, you know that these precious metals are as integral to the human experience as are dogs. Unlike dogs, however, gold and silver is easily passed to the next generation - a recognition that is integral to Chinese and Indian (where they have a depreciating currrency) cultures in particular.
- Try to avoid having more than 50% of your net worth in real estate, particularly in your family residence. That may not be possible depending upon your circumstances. However, I often find that former or current homemakers feel it very important to - get the home. This is fine, so long as it is not your only asset. Real estate, like gold, is a store of value. But buying properties on spec is dangerous, as the 2008 real estate bubble demonstrated.
- In the safe place into which you put some gold and/or silver, keep at least four months of expenses there in cash. Never touch it, until that singularity event that you put it aside to protect against occurs.
- Do not keep more than 25% of your liquid net worth in banks, but if you must then keep aware of FDIC insurance rules. There is a growing and persuasive segment of the economic world out there that says that the Fed's printing of money is going to blow up in the next few years. However, nobody knows if or when that will happen, and we have an amazing ability to hold implosions off for much longer than the doom fringe expects. However, rates of return on bank deposits nowhere justify the risks of deflation, inflation, confiscation or economic perturbation (I'm not curbing my rhymes here) verses other asset classes.
While every generation thinks that the end of the world is just around the corner, and it has often proven not to be so for most, certainly we have seen peoples, tribes, and civilizations wiped out again and again and this observation may even be part of our DNA. These are awful times for a large portion of the world; we in the U.S. only have a sanitized understanding of that, as we sit safely in our homes. Evaluation of risk in making our individual choices should be balanced, given that circumstances ebb and flow in waves. The trick is to make investments that spread and even out risk over time.
Whatever point of view you have, I urge you to diversity your separation and divorce based investments according to your higher wisdom and consistent with your values. The Internet is an amazing resource but, of course, not everything you read may prove to be true (here, as elsewhere I'd have to wager).
For gold and silver buying nationally you can trust Cloud Hard Assets as a source of acquiring what it purports to be at the best prices and lowest premiums. Never buy from telemarketers, or from anyone that wants to sell you a "rare coin." To learn more about precious metal economics, check out Mike Maloney's intelligent work at GoldSilver.com. He has some great videos that talk about the history of money and paper currencies that deserve to be taken seriously. For entertaining if slightly alternative fringe news and interviews but economic and geo-political instability from a former mainstream news correspondent, visit Greg Hunter at USAWatchdog.com.
This may or may not have answered your question. If you have not managed accounts or budgets, that is one of the first things you must take charge of learning. A regular bookkeeper or CPA can help you there. Get a Quicken program and get in the habit of using it. I'll come back and edit this blog to talk a little a Certified Financial Planners and the like, who may be more appropriate to gaining some sense of future security and independence.
By: Thurman W. Arnold III