5 Personal Finance Tenets That Aren’t as Smart as They Used to Be

When I was a kid I used to love the fun houses found at summer carnivals and local fairs.

I loved the sense of twisted reality provided by image-distorting mirrors and the wacky side-rooms where water appeared to flow uphill and it was nearly impossible to stand straight.

Today, thanks to an extended period of near-zero interest rates, years of massive government deficits, and central bank “money printing,” we’re all stuck in a different kind of fun house now: an economic one that has turned some previously-sacrosanct canons of personal finance on their head.

At least as far as I’m concerned.

As a result, when it comes to managing my personal finances, I now find myself doing things I would have never considered a decade ago.

Keep in mind that the new paradigms I’m espousing here aren’t for everyone. In some cases, the old practices still have their benefits — however, they’re no longer the slam dunks they used to be. With that in mind, here are the biggest examples:

1. The mortgage

Old reality-based tenet: Pay off your mortgage as soon as possible; the shorter the mortgage the better.
New fun house tenet: Hold on to your mortgage for the full term; the longer the mortgage the better.
Why I changed my mind: I made close to $80,000 in extra mortgage payments between 1997 and 2009. Then I stopped — and for good reason. Remember, the US dollar has lost more than 97% of its value since 1913; and for most of that time, the Fed at least feigned an interest in maintaining the dollar’s purchasing power. However, since 2008, they’ve clearly lost their way. As such, I expect the dollar’s purchasing power to depreciate at a much faster rate. So, from a purely financial perspective, it only makes sense to pay off my mortgage as slowly as possible, using dollars that will be worth significantly less in the future.

2. Debt and savings

Old reality-based tenet: Savers are rewarded; irresponsible debtors are punished.
New fun house tenet: Responsible debtors are rewarded; savers are punished.
Why I changed my mind: Artificially low interest rates act as a stealth tax on thrifty folks and other financially responsible people. As a result, savers today are, sadly, “rewarded” with real interest rates that are actually negative. Today, for people with steady jobs, zero- and other low-interest rate loans have greatly lessened the risk of taking on bad debt. Considering that my emergency and rainy day savings accounts are fully funded, I’m willing to do this more than ever now — as long as I have additional savings on hand to pay off these loans in full should the need arise.

3. My retirement nest egg allocations

Old reality-based tenet: An age-appropriate mix of stocks, bonds and cash is enough to adequately protect your nest egg.
New fun house tenet:   A diversified mix of stocks, bonds and cash is insufficient to adequately protect your nest egg — you need physical gold and silver too.
Why I changed my mind: Until a few years ago, I thought economic collapse was inconceivable. Today, I’m absolutely certain that a “hard reset” is inevitable. Our current debt-based monetary system is completely unsustainable; since 2008, the Fed has hastened the process by backing itself into a corner from which there is now no escape. No, I can’t say for certain when this will happen — but I do know that the dollar’s inevitable fall will wipe out most middle-class nest eggs. So, in order to hedge against such a scenario, I now supplement my retirement savings with physical gold and silver.

4. My 401k plan contributions

Old reality-based tenet: If possible, take advantage of the pre-tax paycheck deduction by making the maximum 401k contribution.
New fun house tenet: Deduct only enough money from your paycheck to take advantage of your employer’s 401k match.
Why I changed my mind: For years, I used to have the maximum pre-tax contribution deducted from my paycheck. Not anymore. If I contribute at all, it’s only enough to qualify for the full company match because my 401k offers no precious metal investment options as a hedge against economic collapse.

5. Bank and credit union deposit accounts

Old reality-based tenet: Parking up to $250,000 in your bank accounts is perfectly safe because the money is insured.
New fun house tenet: Parking even modest amounts of cash in your bank accounts should be done at your own risk.
Why I changed my mind: I used to think my savings were safe because the Federal Deposit Insurance Corporation (FDIC) says they insure deposits up to $250,000. After all, the FDIC has a $25 billion insurance fund. Then I found out that the value of all insured deposits sitting in US banks and credit unions currently total more than $9 trillion. Yep, that’s trillion — with a “t.” Welcome to the fun house.

Photo Credit: avrene


  1. 1

    Spedie says

    This is highly disturbing (especially the 25 billion part). I have been looking at properties out in the country to purchase with what is left of my emergency fund. I figure it best to have land and a mixture of silver (gold is too pricey for me). I want tangible assets that I can immediately use as I have zero confidence in the dollar anymore.

    After purchase of said property for cash, I will then rebuild my emergency fund with the Fed’s funny money. I plan to suspend all investing as I fear the government will take it all anyway.

    The drop in silver lately has not helped me at all in the short term. Silver is highly volatile. I have lost about a third of the value of my silver in the recent months.

    • 2

      Len Penzo says

      Spedie, remember … the paper price of silver and gold may go up and down but their purchasing power remains stable — no matter what the price. Gold and silver are intended to be bought and then held for the long term — they are the only means we have to maintain wealth through a currency reset and get us to the other side of such an event. And if a currency reset doesn’t occur before we die, then that gold and silver is to be passed on to our heirs.

      People who buy silver and gold must remember that, or it will drive them crazy! Despite the last big drop in gold and silver prices this year, I never lost any sleep because an ounce of gold and an ounce of silver purchasing power were relatively unaffected in the short term — and absolutely unaffected over the long term.

  2. 3

    Shirley says

    Simplify this for someone who doesn’t get all this investing stuff. If bank and credit union deposit accounts are not safe, where SHOULD I put my money? I know you said gold and silver but is that it? Is that the only option other than stuffing my mattress?

    • 4

      Len Penzo says

      I know. There aren’t a lot of choices, are there, Shirley?

      Don’t get me wrong … I’m not recommending that everyone withdraw their savings out of their bank accounts and stuff everything in a mattress — but it’s important to be aware that bank deposits aren’t as safe as we think they are. Money in the bank still has its benefits — liquidity being the biggest (now that we don’t get paid interest anymore).

      For that reason alone, I still keep ~$30,000 worth of deposits scattered among various bank accounts.

      Aside from holding physical gold and silver, the other option is to convert any savings in excess of what you may be comfortable keeping in the bank into tangible assets that tend to hold their value relatively well over time. The drawback is if you do that you forfeit the liquidity benefits that cash provide.

      I used some of my excess savings to build long-term food and water stores, and make a few upgrades to my home.

  3. 5


    Hi Len,
    I think you’re right–the economic and financial environment has been wacky the past 5-6 years. Will be fascinating to see if the Fed and other policymakers can ever let the economy and financial markets revert to ‘normal’–responding to free market forces mainly–without the economy suffering severe withdrawal.

    You make some provocative and insightful points. Though I think all have merit and are worth contemplating (my favorite hobby!), I especially agree with #3, nest egg allocations. I think we all need to think outside of the traditional box to secure our nest egg these days.

    • 6

      Len Penzo says

      I’m not sure the Fed can unwind everything they did without causing a massive panic in the markets, Kurt — although I hope they can.

      You saw what happened the last time Bernanke simply hinted that he was thinking of tapering the Fed’s $85 billion per month quantitative easing program … interest rates immediately began spiking and he had to back off immediately to keep the markets from crashing.

  4. 7


    Len, I think that the first three tenets are ‘spot on’ – I have been changing my practices as well and believe that we, PF bloggers, will do better by our readers if we write more about the way in which the world has changed and what this means for the way in which we manage money than go over old ground. Thanks for writing this.

    • 8

      Len Penzo says

      I agree, Maria. This is not mainstream advice — and you won’t find it on most personal finance websites because: A) people can’t see the forest for the trees; or, more likely, B) nobody wants to talk about the giant elephant in the room for fear of looking like a kook.

      Fortunately, I don’t care what people think.

      Besides, I know I’m right. 😉

  5. 9

    Sam says

    Why we won’t go back to the gold standard:

    1. Gold, or any item of limited supply, is a horrible medium of exchange. The reason dollars work is because they lose value by design .

    2. Gold backed money would be pro-cyclical. Inflationary in good times, deflationary in bad. Contrary to Len’s assertion, you could buy a LOT more stuff with gold in 1932 than you could in 1929.

    3. We would leave our monetary policy up to some entity we have no control over. Demand based recessions in the U.S. could be caused at will by China or India’s demand for gold.

    4. Returning to the gold standard causes a country to inevitably leave it (and dance joyous jigs when they do): See U.K. 1925 – 1931. See real growth rates for any country after they left the gold standard during the Depression.

    • 10

      Len Penzo says

      For the record, I didn’t say we were going to a gold standard, Sam. (Although I’m not discounting it.) I said those who wish to preserve their wealth will need to hold gold (and silver) until they get to the other side of a monetary reset.

      As for your points:

      1. I agree with you, the dollar works by design — to quietly rob people of their hard-earned wealth, like a thief in the night (to paraphrase Ronald Reagan). It takes $23 today to buy the exact same basket of goods that could be purchased for $1 in 1913. That is an embarrassing loss of purchasing power — not to mention grand theft. A legitimate currency is supposed to hold its value over time. Fiat currencies enable corrupt governments to spend beyond their means via monetary debasement. Corrupt governments and politicians hate the idea of a gold-backed currency because it prevents them from living beyond their means.

      2. You’re cherry picking, Sam. Of course you can find very short term periods where there are exceptions (like the time you picked between the stock market crash of 1929 and 1932)! But that’s not being intellectually honest. Five thousand years of human history proves that gold and silver hold their value over time. Unlike the dollar, it doesn’t take 23 times more gold to buy the same basket of goods today as it did in 1913; in fact, it takes virtually the exact same amount. One real world example: A silver quarter in 1964 bought a gallon of gasoline — and the melt value of that same silver quarter will still buy a gallon of gasoline today (50 years later).

      3. You’re going off on a tangent. (But there are other options for our next monetary system besides a hard gold standard, Sam.)

      4. There is a happy medium out there — kind of like what we had between 1913 and 1971 when Nixon closed the gold window. Of course, the next time around we must insist that future safeguards be put in place to keep politicians from raiding the treasury to buy votes, such as the proposed Constitutional amendment that limits federal spending each year to 18% or 20% of GDP.

  6. 11

    Sam says

    1. You did claim it in your econ collapse 101 post. A legitimate currency does NOT hold it’s value, or people would hoard it (like they did with gold).

    2. This is one example of many. These occurred during the gold standard: Panic of 1857, Panic of 1873, Panic of 1893, Panic of 1896, and Panic of 1907… Whereas the era after Bretton woods is “the great moderation”. Only they made a mistake and let inflation get too low. There is much more.

    3. It’s not a tangent if you remember your own post.

    4. There are many more options. Adopting NGDP targeting for instance will eliminate the much of the discretion of the Fed. Once a growth target is adopted, then, as Scott Sumner says: “all our problems are structural”. In a nutshell it means politicians no longer think they need a fiscal solution when rates drop to 0.

    • 12

      Len Penzo says

      1A. No. You need to read more carefully, Sam. I expressed a personal preference that the US return to some kind of “gold-backed” standard similar to what we had before Nixon closed the gold window. That is not the same as saying that the US will return to a gold-standard — although it probably will be forced to, in some form.

      1B. Sam … Come on. “A legitimate currency does NOT hold its value.” I understand what you’re trying to say, “currencies” are meant to be spent where as “money” should act a store of value. However, there are limits to your claim. For example, I’m sure the people of Zimbabwe would disagree with you considering their dollar was losing half its value every 12 hours at one point. Although I’m sure you’ll disagree with me, silver and gold can act as both a legitimate currency and money.

      2. Again … You give several instances of small moments in time, Sam. You know as well as I do that over the long haul, gold and silver are excellent stores of value. And why are you so afraid of deflation? Deflation rewards savers! There is not a single instance in history of an economy or civilization collapsing from deflation — there are plenty of examples of economies failing from inflation though.

      3. Which post? Certainly not this one. And if you wish to refer back to my original Econ 101 post … again, then you need to be a more careful reader.

      4. But who will establish those targets? Economists, bankers, and politicians? (i.e., the same people who got us into this mess?)

      I leave you with words of wisdom from (believe it or not) Alan Greenspan, who later went on to head the Fed, and now probably regrets ever writing this 😉 …

      An almost hysterical antagonism toward the gold standard is one issue which unites statists of all persuasions. They seem to sense–perhaps more clearly and subtly than many consistent defenders of laissez-faire that gold and economic freedom are inseparable, that the gold standard is an instrument of laissez-faire and that each implies and requires the other.

      In order to understand the source of their antagonism, it is necessary first to understand the specific role of gold in a free society.
      Money is the common denominator of all economic transactions. It is that commodity which serves as a medium of exchange, is universally acceptable to all participants in an exchange economy as payment for their goods or services, and can, therefore, be used as a standard of market value and as a store of value, i.e., as a means of saving.

      In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

      This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.

  7. 13

    Sam says

    oh, and before you launch into another colorful metaphor diatribe and say i’m missing the long term short term:

    If you want a currency that behaves like gold over the long term, then you will have all the same short term issues gold did.

  8. 15

    Sam says

    There is one word for an investment that only returns inflation over time, yet is more volatile than most other investments: crappy.

    • 16

      JW says

      I’m on Sam’s side. The stock market and to a lesser degree the bond market has proven over the long term to be vastly better than gold and silver. It is a simple reason why; metals cannot be eaten, worn or lived in. They only have value in what can be exchanged for them. And encouraging people to buy them when they are still at higher values than they historically should be is dangerous advice. I will not follow you into that fad.

      Your advice on mortgages is correct but the sad fact is many people only manage to save money by putting equity into their house. If they do away with the extra payments I’d bet more people would spend the money then save it.

      #2-#4 are correct as long as people are still saving money, living below their means, and planning for the future. If given time, compound interest will grow savings to remarkable levels.

      • 17

        Len Penzo says

        Fair enough, JW. But you can’t eat, wear or live in a fiat currency either. I’ve got $500 trillion Zimbabwe dollars right here on my desk that won’t buy a single loaf of bread there. But a gram of gold (not an ounce; a gram) will still buy 10 loaves of bread in Zimbabwe — just as it always has. I know Ben Bernanke says gold is just a “barbarous relic” — but for some odd reason, the world’s central banks still hoard it in their vaults anyway. Strange. Why do you think that is?

        Like Sam, you need to understand that gold is not intended to be a money-making investment — it is wealth-preservation insurance against financial collapse. Period. It is not intended to be sold until some point after a new currency is established. So the number of fiat dollars you need to buy it with today is essentially moot.

        It’s probably wise that you stay away from gold and silver. Only folks with strong hands (i.e., people who understand the true purpose of owning precious metals) should ever buy them. People who do not understand this (i.e., those with weak hands) should stay far away from gold and silver — otherwise they can get burned. Badly.

    • 18

      Len Penzo says

      Gold is not an investment, Sam. It is a hedge against economic uncertainty.

      Anyone who buys gold with the intention of anything other than wealth preservation does so at their own risk.

      • 19

        JW says

        Well, now you made a fair statement there too. I went back and re-read and you did state it as a hedge and not an investment. Although you did make it confusing when you wrote, “my 401k offers no precious metal investment options as a hedge”, kind of mixing up the purposes of a 401k. Since a 401k grows tax-deferred, it shouldn’t offer any non-growth options anyway. If you are able, you still max out the 401k to enjoy all that tax free goodness and compounding, then have your small gold pile if you prefer. If I found myself in a country in similar straits as Zimbabwe, getting out of the country would be the first thing on my to do list possibly before eating bread.

        Yes, never put money in investments you don’t understand.

        Aside, I was working on a long-term chart to show how bad gold is as an investment vehicle but Joshua Kennon does it better than I ever could. http://www.joshuakennon.com/stocks-vs-bonds-vs-gold-returns-for-the-past-200-years/

        • 20

          Len Penzo says

          Yes, in retrospect, I shouldn’t have used the “i-word” in that sentence. Your point is well-taken — it confuses my message. (I used “investment” in regard to the 401k reference because most folks look at their 401k choices — stocks, bonds and even stable value funds — as “investment” options.)

          Believe me, I’ve pondered for many many hours and days about the right path to take with respect to my 401k. It may seem silly on its face, but all that tax free goodness and compounding is not such a great deal if the dollar ends up eventually being wiped out — or reduced to, say, 10 cents on the dollar — before I can access it. At one point I even considered stopping all 401k contributions. In the end, I determined that, for me, taking advantage of the company match was the wisest choice. Despite my convictions, I realize I still need to hedge for all eventualities — including no financial collapse.

          As for Kennon’s stocks vs. bonds vs. gold: We agree — gold is not an investment. That being said, I’m not sure Kennon’s comparison reveals much since gold’s price was fixed for a good chunk of those 200 years. One of his reader’s pointed that out to him and Kennon did a little sleight of hand, saying he included gold’s recent run up — but Kennon failed to rebut the reader’s claim about gold’s fixed price. He did say something about gold not being restricted in the rest of the world, but his metric was US dollars. Regardless, as we all know, past performance is no guarantee of future results.

          • 21

            Sam says

            The value of the dollar is irrelevant if your real return is positive.

            And BTW – you are supposed to buy hedges when they are down, not when they are up. Otherwise you are just a sucker buying high.

            In any case, better hedges are new skills, a means of production or extraction. Learn how to weld, buy an orchard, a mine or a sawmill and at least if nothing happens you can still make some money on it.

            • 22

              Len Penzo says

              “The value of the dollar is irrelevant if your real return is positive.”

              Sam, what “dollar”? If the gold and silver is ever cashed in because of a dollar implosion, then it will be cashed in for a new currency. As the value of the dollar goes to zero, the real return on your gold and silver will approach infinity. (And, no, it won’t be infinity. But it will preserve the equivalent buying power you had on the day you purchased it — and probably a good bit more, because trust in fiat currency will be at a low point.)

              “You are supposed to buy hedges when they are down, not when they are up.”

              You continue to think like Gordon Gecko. I’m not talking about investing in stocks and bonds here.

              “Better hedges are new skills, a means of production or extraction. Learn how to weld, buy an orchard, a mine or a sawmill and at least if nothing happens you can still make some money on it.”

              Yes, those are alternative hedges — but better? Learning a new skill is nice, but it will do nothing to protect the wealth you’ve already accumulated. Buying an orchard, a mine or a sawmill have risks too.

          • 23

            Sam says

            I guess the really good hedge is the website where continue scaring people about a vaguely defined economic collapse at some time in the future so you can milk it for all it’s worth and can never really be told you’re wrong because you don’t actually say how and when. Well done!

            • 24

              Len Penzo says

              Don’t be an oaf, Sam.

              Snipe all you want, but you’ve done nothing to rebut my argument — or show that you understand the difference between an investment and insurance.

  9. 25

    Karen says

    Our economy is so frustrating! I have my $19,000. emergency fund in a CD. Last year that CD earned $21.56 in interest on that money (and taxes must be paid, slashing the take to around $17.99). This week I bought a croquet set at a yard sale, and sold it for $35. I cleared $29. that way, the CD almost seems pointless. My house is paid off, the rental properties are paid off, there is no place to store money where you don’t lose it. As to tangibles like silver, gold and stocks, the point is to buy them when low and sell only when high.

    • 26

      Sam says

      Karen – The problem comes down to supply and demand. We have a mismatch of too many people who want to lend money, and not enough responsible people that want to borrow. This results in a very low “price” for loans (that is, the interest rate at which borrowers will borrow right now is low, likely negative in real terms)

      Len likes to blame the Fed for this, but all the Fed can do is manipulate people who are normally savers like Len into thinking inflation is going to be higher in the future so that they become borrowers and increase the demand for debt :) All is going according to plan …

    • 27

      Len Penzo says

      Karen: Silver and gold are meant to be bought and then held. Period. If you are looking to sell them for a profit with today’s fiat currency, you are playing a dangerous game.

  10. 30

    Ndy says

    I agree with Sam. I’ve always enjoyed this blog but this post was really scary. Len, this post may well have a lot of negative impact on some of your readers, especially those not well heeled in finaces. Imagine if they all stopped contributing to their 401K, depositing money to their banks, and paying down their mortgages….that is some doomsday scenario you just painted for folks out there. You can have these personal opinions but dont propagate them on a blog like this b/c it will negatively influence people’s finance bottom line

    • 31

      Len Penzo says

      I know it’s scary, Ndy.

      But I owe it to my readers to explain where I am coming from. It would be hypocritical of me to advise everyone to continue paying down their mortgage when I no longer do it. Everybody is in control of their own personal financial destiny and can make their own decisions. I’m just sharing my thoughts.

      Believe me. You can go back in my blog and see the evolution of my thought process. Until recently, I was a firm believer in the health of our financial system — but I’m not any longer. The monetary policies of the world’s central banks have turned everything upside down — and we’re all in big trouble. Is that hard to listen to? Yes. Do I wish things were different? Of course. I don’t like having to stop paying down my mortgage, contributing only enough to get the employer match to my 401k, and buying precious metals, but as far as I’m concerned, those are, ironically, the most financially responsible options now. Look, I’m an engineer — as such, my nature is that I don’t make any financial decisions without a lot of deliberate and very careful forethought and risk analysis.

      If, by some miraculous stroke of serendipity, the financial landscape returns to normal and the risk of currency default is greatly reduced, then I will reverse course again and change my strategy.

  11. 32


    I still think we should pay off the mortgage before retirement. I like to stretch it out as long as possible before then though.
    Yeah, the low interest rate changed a lot of stuff. I’m sure it will head higher at some point though.

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