The Alpha Strategy was coined the Ultimate Plan of Financial Self Defense by the author of the book, John Pugsley. The book was written in the early 1980’s but its message could not be more applicable to today’s economy and financial world. The book’s message is one of understanding real wealth and preserving it over time from the dangers of inflation, taxation, risk and more.
Defining Wealth
The Alpha Strategy aims to define wealth properly. The book goes into detail why paper assets are not wealth. Instead, paper money or assets are typically a certificate that can be exchanged for real wealth. Real wealth are the tangible things that you need and use every day of your life. For example, all of the following can be considered wealth: your computer, your car, your food, water, clothing, your home, your hammer, soap, etc. Furthermore, intangible items such as knowledge can be considered wealth.
Since wealth is now defined as the things that make your standard of living possible, the strategy now focuses on storing and saving real wealth versus paper wealth. Typically, individuals work, recieve paper money, then transfer that paper money into things such as food and other consumer products. The author of this book recommends two things:
- First, you must reinvest some of your wealth into yourself and your ability to produce or generate wealth – this is how you can grow your standard of living
- Second, you should move as much of your “money” straight into real material goods or consumer products (real wealth) rather than storing it as paper wealth.
We will get into each of these further in the following:
Part 1: Investing In Production
The first part of the strategy involves reinvesting your money/wealth back into your means of production. This typically falls into one of the following areas: education, skills, tools.
Education
The book takes a different angle towards education. Most people view education as getting a college degree. The book instead takes a more general aim at education, instead encompassing all kinds of education from a college degree, to specific training and education programs you might take outside of a school-like atmosphere. Furthermore, by restricting the idea of education to college, people tend to think that they are done educating themselves after graduating from a University. Instead, education should be a focus and a target of investment throughout your working life. Educating yourself to be able to produce and work is important and will allow you to increase your standard of living over time.
Additional Skills
One of my favorite aspects of this book is that the author recommends people learn additional skills from their primary skill. Why rely only on your single skill? Industries come and go with advances in technology and innovation, and if you’re left with a skill in a dying industry, your future will quickly become bleak.
It’s important to learn additional skills to not only diversify your skill set but also to potentially produce additional income streams.
Tools
Tools enable you to produce with greater efficiency. The only difference between a specific worker of today and the same one from 100 years ago are the tools that he or she uses. Production has greatly increased as a result of innovation and technology benefiting the tools of production.
You will need to invest some of your wealth into tools to improve your production. Depending on what you do, this might mean supplies, inventory, computer or other technological products, etc.
Part 2: Investing in Consumable Goods
The second stategic element of the Alpha Strategy is to invest and stockpile consumable products.
The Ultimate Savings Account
The author describes what he believes would be the ultimate savings account. This account would include every item and service you would ever consume for the rest of your life. This would include clothing, tools, food, water, electricity, shelter, toiletries, etc. Of course this is impossible since there are things you cannot store such as a lifetime of electricity. But, understand his point he is making.
Consumer Goods Equal Wealth
The goods you consume make up your standard of living. This is your wealth. Therefore, by storing your wealth in the things you will consume in the future, this is a very good way to store your wealth. Let me explain why this is a smart way to store wealth.
- Gains made on consumer goods are not taxed – if the price of a certain product increased over the years with inflation, you will pay no tax on your gain
- You are able to save time by purchasing in bulk – As many people say, “time is money”
- By stockpiling goods, you protect yourself from shortages that might be a result of price controls, supply chain disruptions and other disasters
- You are much more independent from “the system” when you have a stockpile of goods
- Inflation protection
- Your wealth isn’t at risk of huge loss as a result of economic stability – after all, you need these goods anyways
With that said, stockpiling requires space and space costs money; so, you need to be smart on what items you stockpile. Also, pay attention to shelf life. If you buy thousands of dollars of goods that go bad, that is a terrible investment.
Part 3: Invest In Real Money
Staying with the theme of avoiding paper money, part 3 talks about storing the rest of your wealth after production and consumer goods, into real money. Real money will typically involve precious metals and other commodities.
Precious metals are a great option because they have limited supply, can be transported, are very valuable for their size, etc. Precious metals are money.
You And The Alpha Strategy
Are you an Alpha Strategist? I want to hear your story and maybe share it with the readers of my blogs. If you’re doing any of the things mentioned in this article, please contact me and tell me about it!
One last thing to remember is that when it comes to your overall financial plan, don’t be confused with the various investment strategies out there. Instead learn from GoldenTree asset management firm about the most effective way of managing your investments.
