On Friday, the FOMC meeting held in Jackson Hole, Wyoming, caused gold and silver prices to spike.
Almost instantaneously, following Jerome Powell’s remarks concerning the FED’s monitoring eye of America’s heated economy, the precious metals soared to their best weekly gain since March.
The market is obviously not convinced that central bankers are (1) fully aware of how overheated it truly is at this point, (2) able to stem inflation, before it gets out of hand (3) analyzing the gravity of rising costs correctly, due to trade wars, and (4) not looking to stab President Trump in the back, when the moment comes.
Gold doesn’t spike like that for no reason.
Portfolio Wealth Global developed a unique angle regarding this scenario, which I’ll share fully with you this Tuesday, but today I want to introduce to you a critical portfolio structure, which has unquestionably beaten the index for decades and is easy for you to mimic.
I’ve been back-testing it, using various modifications, to perfect it further, and I want to show you why Portfolio Wealth Global’s diversification model is the best one for part-time investors, especially if the goal is to build wealth over time, not to gamble on lottery tickets.
I call it the Commando Investment Model, and this is the first time I’ve put it into words in an official letter.
Over the years, I’ve taken an interest in the habits, manners, and ways of the special forces of major armies. I’ve read many books on the subject; I have built relationships with people, who are active and retired from these units, to understand what it requires to succeed in missions, which involve major risk of lives, high levels of focus and execution, and lots of training.
One of the key conclusions of my research into these units has inspired the due diligence conducted with the Commando Investment Model.
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The first glimpse of this model came to me from the SAS, the British Special Forces unit, considered by many to be the best on the planet.
Their obsession with going over all likely scenarios at every stage of the mission is outstanding. They call it “situations and reactions,” which is another way of visualizing possible battle-field occurrences and how to react to them, based on proven historical precedence.
In other words, the SAS wants all the answers in advance for any likely and unlikely situation in the field.
This birthed the idea of back-testing a portfolio, which is ready, at all times, for the big 4 in economic conditions: Inflation, Deflation, Recession, and Growth.
What I have been able to prove is that the most advantageous weighting of the four is growth.
In other words, growth is the most likely event in the free enterprise system and therefore deserves more than 25% of the capital allocation. Betting on U.S. companies growing is a safe bet, judging by history, and you can offset the risk of recession easily by having a cash position as well.
The best way to think about it is this: Make it a rule to build cash position, which is 66% the size of your stocks portfolio.
This means that a person, with $150,000 invested in U.S. stocks, is better protected, if he also has a liquid cash position of $100,000. Instead of cash, he can make short-term, 1 to 3 months long personal loans on LendingClub.com or PeerStreet.com or hold short-term bonds, which mature over the course of 1-3 months. This will increase the short-term yield, received for his cash.
By doing this, your Commando Investment Model is prepared for growth and recession, but favors the probable economic condition.
Now, let’s move on to the two most-talked-about words in economic circles – inflation and deflation.
When it comes to inflation, holding gold and silver is the obvious choice, but I have found that brand-name stocks, such as Disney, Kimberly Clark, and Pepsico, to give a few examples, are also able to raise prices in the case of high inflation, which makes their stocks incredibly potent to handle inflation.
Adding precious metals makes perfect sense, thanks to its low correlation with stocks as well!
Lastly, to tackle deflation, focus on fixed-income assets, such as residential real estate or long-term bonds. I love real estate, since the rents are mostly determined by demand for housing and have little to do with the stock market, but if the economy is booming, you can leverage your equity to purchase more houses.
All your bases are covered. Research this model. Think of how easy it is to execute, and you’ll understand why the Commando Investment Modelbeats the S&P 500 with less risk and generates the ALPHA!
Research Partner, PortfolioWealthGlobal.com
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This work is based on SEC filings, current events, interviews, corporate press releases and what we’ve learned as financial journalists. It may contain errors and you shouldn’t make any investment decision based solely on what you read here. It’s your money and your responsibility. The information herein is not intended to be personal legal or investment advice and may not be appropriate or applicable for all readers. If personal advice is needed, the services of a qualified legal, investment or tax professional should be sought.