But it's during these good times that wise investors should prepare for a potential crisis.
Most investors equate crisis investing strictly with the buying of physical precious metals. These investors think that buying metals like gold and silver protects them against an extreme inflationary environment. They are not wrong. But because it's impossible to accurately predict the next crisis, diversification across multiple asset classes is your best bet to weather any economic storm.
The worst thing an investor can do in the face of an uncertain future is to build a portfolio that's too heavily weighted in only one asset class.
With this in mind, I built a list of five traditional and nontraditional asset classes every investor should hold in their "crisis-ready" portfolio. I will follow up with a series of five articles, digging deeper into each asset class and providing specific suggestions on how and why to add each one to a portfolio.
| 1. Gold and oil |
These two commodities are traditional crisis investments. Gold has a strong historic precedent as a hedge against inflation,
while oil stocks can be a hedge against civil unrest in politically
volatile regions. In addition, the strong correlation between gold and
oil can be seen in the chart below.
This relationship is the result of two economic forces. When oil
increases in cost, it results in costlier goods and services across the
board as transportation costs move higher. This increase in prices leads
to inflation and, as we know, gold value increases in inflationary
times.
The second and less well-known correlation is government purchases
of oil with gold. Iran is notorious for avoiding U.S. sanctions by
trading billions of dollars in oil for similar amounts in Turkish gold.
In a following article, I will address how investors can use this
relationship to design a strong crisis portfolio.
 |
| 2. Commodities |
Agricultural commodities like soybeans, corn and wheat can play a
vital role in a well-diversified crisis portfolio. Commodities tend to
increase in tandem with inflation. However, should fear grip the economy, commodities can tumble just like the stock market.
|
| 3. Real estate |
It's easier to think of a crisis in the real estate sector today, than real estate as a crisis investment.
The truth is everyone needs someplace to live. There is only so much
available property, and wise purchases of real estate remains a core
feature of successful investment portfolios.
There are multiple ways to invest in real estate and profit from it -- even during a crisis. In fact, a crisis can be used as an opportune time to get into the market.
I will delve deeper into the many ways real estate can be part of a
diversified portfolio in an upcoming article in this series.
|
| 4. Currencies, coins, bullion |
These are three distinct assets but all three can be physically
held. Currencies, as in the Forex market, are proven shelters in the
storm depending on where and what type of crisis occurs. One example is
the way the U.S. dollar served as a fortress of strength during the
recent European crisis. Investors who held greenbacks during the euro
zone banking crisis were handsomely rewarded.
Bullion is another word for gold in its physical form. It tracks gold as an asset class, but is not exposed to broker risk as investors physically have possession of the asset.
Coins, on the other hand, despite being similar to bullion, have
additional numismatic value to dealers and collectors. I will provide guidance on how and why to diversify into currencies, coins and bullion in another article of this series.
|
| 5 Art, wine and other collectables |
This section will delve into the nontraditional assets for crisis investing. Believe it or not, there are hedge funds
that specialize in each of these three assets. They clearly add another
layer of diversification on top of an already diversified crisis
portfolio.
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Action to Take --> To really weather the storm -- and even profit -- during a crisis, investors should have a well-diversified portfolio. The five assets mentioned in this article are a solid starting point.
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On the heels of more discussion about additional money printing by
Japan, today one of the wealthiest and most street-smart pros in the
business spoke with King World News about the reality of what is really
taking place in key markets. Here is what Rick Rule, who is the CEO of
Sprott USA, had to say: “We see strength in this market. The underlying
commodities are fairly strong. I hope KWN readers have noticed that in
the really, really depressed days of November and December, we spoke on
King World News about the fact that after tax loss selling, the junior
equity market was going to bounce back simply because the tax loss
selling was abated.”
BIG had been hitting a very important level of resistance at $32 (lt.
blue) and had been stalling at that price since August. No matter what
the market has or has not done over that period of time, BIG has not
been able to break through that area of resistance, until last week. The
stock should be moving higher overall and now, as expected, the stock
seems to be finding support at the previous $32 resistance.
