Mobility and a long term outlook are essential when managing your portfolio in a crisis. The ability to select the best quality long term investments from the traditional and emerging markets. For hedging mobility is key, the ability to access Foreign Exchange, Commodities and Futures to balance your risk is a new fundamental asset for investors.
Cash is no longer king and the value of the USD is being eroded which means everyone must rethink their investment strategy and adjust their portfolio holdings.
While many think that if they live in the USA and earn in USD nothing will change, I can assure you that those days are over, growing world wide demand for food, energy, goods and services has an impact at all retail outlets in the USA.
Every investor, institutional or individual must now balance their portfolio based on currency exposure.
The IMF’s John Lipsky has warned that “the average public debt ratio of advanced countries will exceed 100 percent of their GDP for the first time since the war” by the end of this year, and that this debt is unsustainable, risking a new fiscal crisis for some.
The massive sovereign debt problems of the US and Eurozone also clearly run the risk of sharply increasing future inflation as their currency wars export inflationary pressure around the world.
This will result in real investment losses in long-term fixed interest bonds (as well as in cash), since debt that cannot be repaid from taxes will need to be printed by means of ever larger rounds of quantitative easing (money printing) measures.
All this simply implies an accelerating erosion of the value and purchasing power of money.
Investors can protect themselves from rising inflationary risks by investing in or gaining exposure to real scarcity, traditional safe haven assets like gold, as well as other commodities, I would include things like agricultural land and soft commodities as well.
Dividend stocks will become the next big thing as the Fed intends to hold rates low for an extended period.
Your dividend portfolio should be comprised of businesses that are generating a good mix of revenue in a number of currencies, it should include foreign companies, ADR’s and ETf’s. These need to be well researched and have a strong history of dividend payments.
That dividend portfolio should be 50% foreign non USD derived income at least, it should feature Food, Commodities, Soft Commodities, Agriculture, Energy and companies in that vertical.
Exposure to these asset classes, as part of a diversified portfolio, can generally provide better inflation- protection than a portfolio mostly comprising bonds or cash.
Heffcap www.heffcap.com offers such a balancing and review service for clients that qualify as institutional or accredited investors. For the general public we publish some of our research on www.livetradingnews.com.
Shayne Heffernan
Shayne Heffernan oversees the management of funds for institutions and high net worth individuals.