In this episode, Mak and G explain the importance of diversifying your investments, alternative investments to stocks and bonds, and insights about investing in commodities and raw materials.
With the current level of inflation, it’s natural to wonder how to diversify your investments to be inflation resistant.
In this episode, Mak and G look at alternative investments, and some insights on investing in commodities and raw materials, and why now could be a great time to invest in stocks…
“Having a good plan is key for investing.” – Mak
“It’s tough when everything costs more and inflation is hitting hard.” – G
00:30 – The increase in gas prices and why electric vehicles are getting more expensive.
01:22 – The importance of diversifying your investments.
01:40 – What commodities and raw materials are.
02:17 – What caused oil to get more expensive.
02:39 – The global nature of the supply chain.
03:10 – Different alternative investments to stocks and bonds.
03:37 – If now is a good time to invest in stocks.
04:30 – What makes a country rich and how economists work out a country’s GDP.
06:18 – The top five countries by total GDP.
Connect with Ben Jones:
MAK: Welcome back to Money with Mak & G, we’re happy you’re here. Don’t forget to LIKE, SUBSCRIBE and COMMENT on the podcast.
GRANT: Dad’s getting pretty excited. He says we continue to reach more people on the YouTube channel, our podcast, and even the EduCounting website is growing.
MAK: He talks about SEO all the time, and they continue to write articles online, so make sure to check it out. He even said the team is working on an Alexa quiz based on our podcast.
GRANT: That’s pretty cool, so stay tuned. Last week, uncle Tony got his Tesla. He was supposed to get it in about 6 months or so, and it turned out he had to wait 13 months.
MAK: It couldn’t have come at a better time with gas prices. A little over a week ago we hit a record high on gas. Then the price backed off a bit, and now another surge to a new high.
GRANT: It’s definitely a lot less money to do electric, but those cars are expensive. Uncle Tony got the old price, but his car literally went up over $30k since the time he ordered it.
MAK: Dad’s friend Jason bought a Rivian electric truck, and he said that price jumped over 20%. Anyone who was on the waiting list months ago still had to pay the new price, and everyone went nuts.
GRANT: Yep, then the company backed up and said you get the old price if you were on the list prior to the increase. It’s tough when everything costs more. Inflation is hitting hard. So what do we do?
MAK: Having a good plan is key for investing. We’ve talked about portfolios before which are a group of investments, just like a collection. Having different investments is generally good for most people.
GRANT: You got that right. It balances things in different economic times. Some investments like real estate do better with inflation but not as good at other times. Commodities are raw materials or stuff from a farm.
MAK: So, if you’re building a house, raw materials are all the basic components that are used to make the materials in the house. But, there are others. So, let’s just name a few. There are a lot out there.
GRANT: Gold, which can be used in electronics and at the dentist.
MAK: Wood for building a house.
GRANT: Silver for solar tech and silverware.
MAK: Coffee beans, for coffee, duh.
GRANT: Copper for electrical stuff and constructing buildings.
MAK: Wheat, corn, oranges, and more farm stuff for eating and drinking.
GRANT: If we would have owned investments in wheat, the price has gone up around 35% this year since the issues in Russia. There was less supply in the world, and the same demand, so you drive up prices.
MAK: If you owned oil, another commodity, you would’ve done well on that one too, as the war in Ukraine pushed the price into the atmosphere, up about 60% a barrel. When Europe decided not to buy oil from Russia, what happens?
GRANT: They have to look at getting it from other places. Since it was decided to cut our option of getting oil from Russia, it reduces our potential supply. So, prices go up!
MAK: Isn’t it amazing how we can be affected by things outside of our country. COVID shut down a lot of manufacturers in China. They produce items like computer chips, which go into many things, like cars, phones, computers, and more.
GRANT: We’ve heard this before. It’s called the…
MAK/GRANT: Supply Chain!!
MAK: We all know what happened there. Buying a new car was more expensive if you could even get one because the supply was cut. So, commodities do well with inflation and it’s bad for consumers like us.
GRANT: But, it’s good for investors who have some of these items in their portfolio. Just look at the price of homes and buildings. That’s real estate, and we’ve seen those prices go up too.
MAK: You got that right. We know stocks and bonds normally make up a big part of your portfolio. These other investments are considered alternatives and it’s normally recommended to have some in your portfolio.
GRANT: Exactly for times like this. You don’t go out and buy a whole bunch of oranges, but there are mutual funds and other items you can buy that do it for you. Real estate is easy that way too.
MAK: So, ask your advisor, or do some research. But, if you’re just getting started, being able to buy great stocks now isn’t so bad, because they’ve been:
GRANT: Warren Buffet, one of the best investors of all time always says the time to buy stocks is when:
MAK/GRANT: There is blood in the streets!
MAK: That means when stocks have been beaten up really bad that they’re “bloody”.
GRANT: Right now things are much cheaper than 6 months earlier. It might be a great buying opportunity, but it all depends on your goals, how long you can wait for the market to come back, and other items.
MAK: So, it’s not always a bad thing when we have this down cycle. It might require a little belt-tightening and taking a hard look at the budget for sure. We may feel poorer, but the US is still a rich country.
GRANT: You know dad’s friend Daniel came from Venezuela. He was out riding with him when dad had his accident. He came to the US because his country had been destroyed financially.
MAK: I think he’s going to come and talk to us about what happened. But I did a little research about what makes a country rich, and the number that people look at to figure it out.
GRANT: Did you do a comparison between the US and Venezuela?
MAK: I sure did. Over the last three years, Venezuela did terribly. It hurts to say it. Daniel is a nice guy, but his country lost a great deal of wealth. GDP dropped 35% in 2019 then 30% and 10%.
GRANT: Wow, but is it getting any better. What does 2022 look like?
MAK: They can only guess, but they are forecasting growth at 1.5%. We need to back up a bit. Do you remember the name of someone that studies money and how it affects a country. It’s called….
MAK/GRANT: An Economist!
GRANT: Well, Economists use something called GDP as a number to tell how well a country is doing financially. It means:
MAK/GRANT: Gross Domestic Product
MAK: If you look at each word, it’s easier to understand. Gross is a fancy word for saying “add up everything”. Gross Income would then make you add up ALL your income, which for us would be:
GRANT: Cutting lawns
MAK: And dog walking
GRANT: Then, you have the word “Domestic” which is the stuff made within the country. So you add up all the products made within a country. If you make a car, add it. You have to include services too!
MAK: You got that right. That’s because people make money and produce a benefit from doing services. So, computers are products, and doing someone’s taxes is a product that a CPA offers.
GRANT: So, if a country is really efficient, and has great technology and education, it can build things faster, and not need as many people. That allows the country to sell more products, and the money gets back to the people, which makes it wealthier.
MAK: Great explanation. Venezuela keeps dropping and seems to be around Azerbaijan. And, I don’t know that country. But, Venezuela has huge oil deposits, and they have issues where production is way down.
GRANT: So, they have lots of issues. Understanding things help to explain money a bit better. Let’s name the top 5 countries by TOTAL GDP, when you divide by people in the country it’s different. Are you ready?
MAK: Yep, I’ll start. #1 is the US
GRANT: Very interesting stuff. I can’t wait to talk to Daniel next week, he has stories.
MAK: You got that right. It will be interesting.
GRANT: We’ll see you next week for more Money with Mak & G.