Fun fact: Robert Downey Jr. based his Tony Stark (Iron Man) character from the Marvel Comics movies on Elon Musk.
This is an eccentric billionaire that has decided to spend his fortune on a bona fide spaceship company, SpaceX. Musk has repeatedly said he wants to personally colonize Mars. He even wants to be buried there. Would it really surprise you at this point to see Musk flying around in an armored robo-suit, fighting the forces of evil?
If I had Musk’s billions, I’d likely blow them on a spaceship company too. I can’t help it. I’m a nerd, and I love Star Trek.
Alas, buying a spaceship company is not in the cards at the moment. But Musk has been in the news more recently for far more terrestrial reasons.
Musk’s Bitcoin Move
With his blessing, Musk’s electric vehicle company Tesla Inc. (Nasdaq: TSLA) sold off 10% of its massive bitcoin stash.
The eccentric CEO hasn’t lost his enthusiasm for the cryptocurrency. His personal bitcoin stash is unchanged. The sale was to “prove the liquidity of Bitcoin as an alternative to holding cash on a balance sheet.”
I get it. Musk took some blowback from investors for betting Tesla’s cash hoard on Bitcoin. The jury is still out as to whether that was a prudent move. Tesla booked a $101 million profit selling 10% of its holdings. But bitcoin can be wildly volatile, and that $1.5 billion investment could have easily been cut in half.
I’m a Bitcoin fan. I believe every investor should own at least a little. But I don’t like the idea of a car company effectively transforming itself into a crypto hedge fund. Without the bitcoin profits and tax credits, Tesla actually lost money last quarter.
But let’s look at Musk’s bigger point of finding alternatives to cash on the balance sheet.
Alternatives to Cash
I hate to speak in Wall Street maxims, but cash is trash right now. Inflation — by the Federal Reserve’s own estimation — is likely to run hot for a while, even while interest rates are effectively zero. You can’t put 100% of your savings in the stock market. So, what should you do with the cash?
Here’s my first rule of thumb. Make sure you have enough cash or expected investment income in dollars to meet your basic living expenses. Yes, cash loses value each month due to inflation. But your mortgage payment, car payment and many other regular expenses are fixed. You’re paying a loan that is losing value to inflation with dollars that are losing value to inflation. You’re breaking even. It’s all good.
Once you have enough cash on hand to meet your fixed expenses for at least a few months, be sure that you have dollar income streams via bonds, dividend stocks, etc., to cover them indefinitely.
After these obligations are covered, you don’t need to keep another nickel in cash. Bitcoin and other cryptos are viable for at least a portion of your savings. And Adam and I are both bullish on gold and precious metals in general. We have several open recommendations in that sector in our newsletter, Green Zone Fortunes.
You can also get a little more exotic and buy real estate or other hard assets. But start small. Real estate can be an excellent long-term wealth builder. You are almost guaranteed to make a few mistakes at the beginning, so it’s a good idea to make those mistakes with a modest starting base.
If you’re certifiably insane like Musk, you could also use your savings to build Mars-bound rocket ships. But let’s maybe keep the spaceship allocation to your portfolio suitably small.
To safe profits,
Editor, Green Zone Fortunes
Charles Sizemore is the editor of Green Zone Fortunes and specializes in income and retirement topics. Charles is a regular on The Bull & The Bear podcast. He is also a frequent guest on CNBC, Bloomberg and Fox Business.