How to be truly "rich" when the world collapses?

There is a very interesting article in the weekend edition of The Business Times. It is by Cai Haoxiang and he asks the question "What asset do you flee to when the world collapses?"

We have heard people saying that bonds are now a bad idea and that equities are preferred. So, many are invested and even fully invested in the stock market. No emergency fund? No war chest?

Singaporeans, of course, have a never ending love affair with real estate with many thinking that real estate prices on our tiny island will only see prices going higher. 

Someone told me that there is never a bad time to buy a property. Well, never say never. Those who bought a property here before the Asian Financial Crisis in the late 90s just broke even recently.

Then, there are the bears who believe that a correction is overdue and that the longer the bulls continue charging, the bigger the correction is going to be. 

There are people who do not believe in the rally. What are they doing? Staying 100% or close to 100% in cash and waiting to buy assets on the cheap.

However, in a situation where the world economy really collapses like in 1929, who wins?

"... how long can Singapore survive if there is a sustained global economic crisis? With zero natural resources and an economy heavily dependent on global trade flows, Singapore's economy is especially vulnerable when nobody wants to trade and people worry about clean water and edible plants, not chemicals and electronics.

"In rich, sophisticated Singapore populated with financiers, lawyers and plenty of middle managers, skills actually useful to survive an economic collapse might be startlingly in short supply...

"Build up a set of skills and contacts that people will want in good times and bad and you will never go hungry for as long as you live."

We could have tons of money, even gold and silver coins. Could they be worth more than food and clean water if these should suffer from scarcity? If Singapore's economy should go into a tailspin, would the FTs still want to come here? Who would rent all the spanking new condominiums which have been built? Could we see vacancy rate in the double digits?

"... gold can't be eaten... try convincing the chicken rice seller to take your Bitcoins as you fend off squatters from your multiple properties."

A sobering read with a dash of humour. Get a copy of this weekend's edition of The Business Times. The article is on page 5.

Disclosure:
AK71 is a shareholder of SPH. Every copy of The Business Times sold could contribute to AK71's financial well-being.

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2. Jim Rogers: Why I won't sell gold?
3. Never lose money in real estate?
4. Change to become richer.
5. The Millionaire Next Door.

Why a meaningful emergency fund is important?

This seems like a rhetorical question since the answer seems obvious enough. It is so obvious that I do not recall having a blog post dedicated to the topic.

So, when I came across a blogger who thinks that an emergency fund is not important to him, it got my attention. This is a contrarian and I always like to find out why contrarians think the way they do.

In summary, the reasons why he does not keep an emergency fund are:

1. His family has adequate insurance coverage.
2. His family's expenses are relatively low.
3. His family's investment portfolio is sizable.*

*Current value is about $150,000, generating about $10,000 of passive income annually. This is taken from the regular updates provided in his blog.

Anyway, have a read as I don't want to poison the well:
Why we don't keep an emergency fund?

An esteemed blogger, CW, had this to say:

No emergency fund? Never mind. But still have to maintain adequate level of liquidity to meet unforeseen multiple life events happening.

It is never one hole that sinks a ship. It is several holes happening one after another that sinks that ship.

The blogger, My 15 HWW, replied:

I admit my life experience is lacking compared to many qianbeis like you but I do hope that life would not be so harsh as to sink my small boat. Because it’s small, it could also be nimble and flexible enough to steer clear of impending danger (unlike Titanic)?

If several holes happen, think the emergency fund might not be enough too and one might have to liquidate other assets.

To which, AK says:

I get where you are coming from.

However, I would really encourage some kind of demarcation and even a blurry one is useful. Why?

Let us say that Mr. Market gives us that correction some of us have been waiting for, how much of your cash on hand would you put to work? Doing what you do, if we put in 100%, then, we would have no money left for emergencies.

A small craft might be nimble but try watching “The Perfect Storm” instead of “Titanic” to see the other side of the coin.



"We never want to count on the kindness of strangers in order to meet tomorrow’s obligations." Warren Buffett

A perfect storm could sink us if we did not have a meaningful emergency fund.

Update (29 May 2015):
How much should we have in our emergency fund?

Related post:
Don't think and grow rich.