Savvy, wealthy investors could make a living by saying, “I told you so,” to the masses who keep jumping on the latest investment bandwagons and losing tons of money. Remember when crypto was flying high in the summer of 2021? Fueled by stimulus money, popular online forums on Reddit and social media, crypto, and meme stocks traded at sky-high prices in the latter half of 2021. Take bitcoin, for example. Bitcoin is down over 73% since hitting record highs last November. The Dow is also down after a roller coaster year.
The crypto and public markets have recently demonstrated that what’s popular doesn’t necessarily mean profits. Check out this list of popular public companies that recently reported massive losses. Fourteen companies in the S&P 1500 and S&P Completion Markets, including Uber Technologies (UBER), Rivian Automotive (RIVN), and Carnival (CCL), posted massive adjusted losses this year to the tune of $1 billion or more. Other big money-losers include Coinbase Global (COIN), Peloton Interactive (PTON), and Robinhood (HOOD). Shares of the 14 companies expected to lose the most money this year are down an average of 60%.
Back in the heyday of stimulus and Robinhood-fueled crypto and stock mania, while the masses were rushing into the crypto and stocks, the wealthy were doing something different. The wealthy were hoarding cash and allocating it to alternative investments like private company investments (i.e., private equity) and hard assets like real estate.
The wealthy avoided crypto and stocks and allocated to alternatives to avoid volatility and losses and prepare for recession and inflation. This is how investing in the right alternatives can not only buffer a portfolio from recession and inflation but can also be profitable.
Inflation is a portfolio killer by eroding buying power and depleting stock values, but the wealthy have a counter to inflation by actually profiting from it. How? By allocating to assets that generate both passive income and underlying appreciation that keeps pace with or even exceeds inflation. Passive income from the right assets that keep up with inflation can compensate for job loss or wages suffering from diminished buying power. Passive income is ideal for protecting a portfolio.
So what are the right assets for countering the effects of recession and inflation? The clues are in the news.
If you’ve been paying attention, you have probably noticed a lot of headlines about record-rising rents this past year. Rents have not only kept pace with inflation but exceeded it. And it’s not just with rental real estate and other commercial real estate segments where investors can profit from inflation.
Allocating to the right asset segments tied to essential goods and services like food, shelter, and fuel can generate passive income and appreciation that can keep pace with and even exceed inflation.
Smart investors have never followed the crowds and have never gone along with what’s popular. They have defined investing goals and objectives, and they stick to them. Even as the crowds clamor about the latest and greatest investment, smart investors ignore the noise. They stick to what has always worked for them.
Instead of what’s popular, this is what works for sophisticated investors:
Tangible assets ensure you can never lose 30, 40, or 50% of your portfolio in months, like with crypto and stocks.
Reliable passive income can compensate for job loss and reduction to provide peace of mind during trying times and can also be reinvested to compound wealth.
Historical appreciation builds wealth and ensures wealth preservation for future generations.
To the wealthy, tax-advantaged private investments are ideal for preserving more of what they earn – leaving more for reinvestment.
Non-Correlation To The Broader Markets.
Illiquid private investments are insulated from broader market volatility.
Invest For The Long-Term.
Smart investors invest for the long term to insulate their portfolios from herd behavior and for peace of mind. Investing long-term in reliable assets allows short-term dips to be ironed out over time, giving investors peace of mind from not having to worry about daily movements.
Popular doesn’t always mean profitable. It’s usually the assets that the masses flock to that create bubbles. Think dotcoms, asset-backed securities, and crypto. Instead of investing in what’s popular, smart investors prefer boring because it’s the tried and true assets that remain reliable through good times and bad.