Steve's note: This is a time to be bold and buy... and to plan ahead, before the bull market ends. Today, my colleague Austin Root shares the secret to owning the right assets during the next bear market. (And if you want more details on this idea, don't miss the Bear Market Survival Event, online tonight at 8 p.m. Eastern time. Join the guest list for free right here.)
Five things. You need just five things to be happy.
Or, better said, five things will give you the best shot at happiness.
Food, shelter, health, companionship... and a good answer to the following question: "When the going gets tough, what will I have on my side?"
A sea of different market forces are pushing stock prices around. When the year started, the push went in one direction – way up. Lately, it's been more to the downside.
I don't see a recession or stock market crash around the corner just yet... But signs of trouble are starting to form in the distance. So today, we'll look at which assets you should rely on when things in the market get really scary.
The good news is, two simple steps can get you started down the right path. Let me explain...
After a fantastic start to the year, renewed tensions between the U.S. and China have ratcheted up fears in the market once again.
This could all be short-term noise. Even so, the fact remains that we're closer to the end of this bull market than we've ever been. And when it finally comes, the nearly 5% decline we saw in the Dow Jones over the past two weeks will look like nothing in comparison.
So what should you do when the crash comes? Should you sell everything and go to cash?
Well, no. For one thing, when the market finally melts down, cash won't fully protect you. Cash is going to go down in value in the next recession – probably a lot.
That's because the biggest problem for the U.S. and most other major economies around the world is that they have way too much debt. And the easiest and most likely way to resolve this problem is to devalue their currencies by printing money. (In a future world where the dollar's value gets cut in half, everything will cost twice as much... except the money you borrowed in the past.)
It turns out that cash – in a low-growth, high-inflation world – is not king.
That's why if you want to prepare for a recession and market crash, you'll need to own more non-cash assets... not fewer.
The first thing to do is to invest in some precious metals, commodities, and hard assets. Those will hold their value better than cash will in a recession and stock market crash.
On a nominal basis – or in dollar terms – these assets should do well. But remember, your dollars will be worth less.
What you need most are assets that should appreciate over time on a real basis – meaning they're worth more after inflation. These are assets with intrinsic values that go up year after year... And they're the assets you want to rely on when things get really scary.
Over the long haul, one of the best asset classes for that is stocks.
Countless statistics show how well stocks have performed over long periods of time. I'll spare you most of them. But consider one data point: Since the S&P 500 Index launched more than 60 years ago, there is not a single period of 16 years or longer that stocks didn't rise.
And on average, stock gains beat inflation by 6.7% per year. This means that even if you picked the absolute worst year to buy stocks, you still came out ahead if your investment horizon was long enough.
OK, but which stocks should you buy?
To answer that – to figure out what to rely on when things get really scary – you need to ask yourself both of the following questions:
- Do I expect this company to still be doing well in 20 years?
- If I woke up tomorrow and saw the stock was down more than 10%, would I want to buy more of it?
If you can answer "yes" to both of these questions, you're investing in a durable business that you have confidence in. And that combination of staying power and understanding will enable you to make better investment decisions when the going gets tough.
This bull still has some run left in it. You want to stay invested to take advantage of the upside.
And in the meantime, you also want to own these "Steady Eddies" that will have your back no matter what. They'll enable you to stand strong and stay invested in other parts of your portfolio... And they're a great way to supplement some of your more growth-oriented "Melt Up" positions.
In short, this is the perfect time to review your portfolio. Get your Steady Eddies on your side. They will protect against unforeseen dangers... and put your portfolio on solid ground when the market gets choppy.
Good investing,
Austin Root
Editor's note: For more details, join us TONIGHT at 8 p.m. Eastern time for the Bear Market Survival Event. You'll find out why the next financial crisis will be the worst in our lifetimes... how to know when it's arriving... and what to do to actually grow your wealth while others are struggling. This online event is free to attend... with appearances from Austin, Porter Stansberry, and investing legend Jim Rogers. Save your spot right here.
Further Reading
"The company grew from nothing to a dominant industry force in a little more than a decade," Austin writes. "And yet, it's the perfect example of how not to run a business for the long haul." For an example of the assets you don't want to own when the bear market hits, read more here.
"How do you know you're making 'A+' investments in your portfolio?" Austin asks. "How do you test for strengths and weaknesses, so you know where to improve?" There are three easy steps... Learn more here.
It's vital to protect your portfolio during a bear market. And this strategy provides both safety and steady income when things get bad...
TIMES ARE STILL TOUGH FOR MALL RETAILERS
Today, we're highlighting a company in a struggling industry...
Regular readers know that online shopping is threatening the traditional retail space. Companies like Amazon (AMZN) make it fast and easy to order items on-demand, from the comfort of your own home. This trend is especially bad news for malls and their retailers...
L Brands (LB) is a perfect example. The $6 billion retailer owns mall brands Bath & Body Works and Victoria's Secret, with almost 3,000 stores across North America and several other countries. These stores rely heavily on mall foot traffic... So as people continue to shop online, L Brands suffers. The company reported around $644 million in net income for last year, down from $983 million in 2017.
As you can see in today's chart, LB shares have plummeted. The stock has fallen nearly 80% from its peak in November 2015, and shares recently hit a new multiyear low. The e-commerce trend is still going strong – and the pressure on mall retailers hasn't let up yet...
