Why World War 3 is more likely than you think! (Part 2)

In my last blog post, I discussed the growing concerns about the risk of World War 3. While I still consider such an event unlikely, it is worth exploring how one can prepare for extreme scenarios. 

Lessons from History

Many books delve into the impacts of war on wealth. For instance, Wealth, War & Wisdom by Barton Biggs examines how wealth was preserved, lost, and rebuilt during World War 2.

Surprisingly one of the key themes in most of these books is not about money, but about the importance of having a variety of skills and being part of a community. In tough times, having different skillsets can be useful and having a community that you can lean on becomes important. 

But given that this is a personal finance blog, let us analyze the impact of war on three key asset types: Physical Assets, Financial Assets, and Cash.

Physical Assets

Physical assets like gold, real estate, art, etc. hold distinct advantages during times of crisis, but they also come with specific challenges.

People who held expensive art during the wars were worried about it being confiscated or destroyed. Since art is difficult to move they had to come up with innovative ways to hide it. But if they managed to retain their art after the war, they were golden.

Gold is better than art since it can be used to trade / buy things. However, gold stored in banks or safety deposit boxes may be seized during wartime.

Houses can be damaged or destroyed during times of war. Land ownership is generally better. Farmland is even better – as it can provide food security during tough times. The biggest advantage of land is it is immobile – it cannot be carried away by any army. And land often preserves ownership rights even through upheavals.  

Financial Assets

Financial assets include stocks, bonds, bank deposits, etc. all of which face significant risks during wartime. Banks may shut down, companies could go bankrupt, and governments might default on bonds. However, among all these assets, stocks tend to perform the best over the long term.

Although stocks lose value during wartime, they typically recover afterward. 

However, stocks are issued by companies and some companies may go bankrupt during a war. Others can get nationalized. So, the authors found that during times of war the stock investments that did best were the ones through a diversified index fund. These funds consists of a large number of companies. So even if a handful of companies went bankrupt or got nationalized, the other companies in the fund made up for it.

Cash

Cash may not grow like stocks or provide income like bonds. But during crises, liquidity can be invaluable. The authors found that having an emergency fund (money that can sustain you for a period of time) was critical.

None of the books talk about Bitcoin because it wasn’t around during historical wars. But it might play a similar role to gold in the future, offering an alternative for wealth preservation.

Conclusion

Based on lessons from history, the three best options to preserve wealth during wars are:

1. Physical Assets: Land (especially farmland) for its utility and stability. For me, farmland is not a feasible or practical thing, but who knows – maybe after retirement I will buy a farm!

2. Financial Assets: Invest in a diversified, low-cost index fund and hold on for a long time. Luckily, this advice applies not just during times of war but also during all times. I invest most of my money in S&P 500 Index Fund (VOO).

3. Cash: Maintain an emergency fund to provide liquidity during crises. I have an emergency fund. I also have a small amount of Bitcoin.

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