Unrestrained government spending and ultra-loose monetary policies such as quantitative easing and negative interest rates have created a record level of debt around the globe. Historically periods of excessive debt have almost always led to economic and political crisis. Politicians still have the power to avoid a major collapse if they take resolute and unpopular decisions. However, based on their actions over the past two decades we should not count on it.
Contrary to a lot of other websites whose contributors seem to have visionary power we don’t pretend to know exactly what will happen and when. A single external or internal shock that will throw the global economy into depression is just as possible as the continued gradual deterioration of living conditions covered up by government propaganda and fabricated statistics as is currently the case. Some well known analysts expect a deflationary shock similar to that of the Great Recession in the 1930s. Others predict hyperinflation reminiscent of the Weimar Republic or – more recently – Zimbabwe and Venezuela. We might even get a mix such as asset deflation coupled with consumer price inflation or a cycle of inflation followed by a period of deflation and then surging inflation as central bankers overreact and flood the world with a tsunami of new money created out of nothing.
No region of the world will be fully spared but the extent of the crisis will differ significantly between countries. A lot will depend on the future decisions of politicians and central bankers, shifts in investor psychology and the occurrence of black swans (unpredictable and catastrophic events). Make sure that your portfolio can withstand different scenarios.
To prepare your portfolio for the uncertain and likely tumultuous times ahead the following diversification is advisable:
- Diversify internationally by holding assets around the world as the situation will likely differ between countries and having assets away from home might help you to move abroad if the situation in your home country becomes intolerable
- Diversify between custodians as every service provider is vulnerable to bankruptcy, confiscation or fraud. In particular don’t keep all your money with a single bank, all your stocks/bonds with a single broker or all your cash/gold in a single vault
- Diversify away from FIAT assets as there is a high risk that the main fiat currencies such as the USD, EUR, AUS, CAD, JPG will fail. Consider investing part of your money in physical gold/silver and also in some cryptocurrencies
An overview of what we consider suitable investments is shown below.
It would be unprofessional to provide more information about the appropriate share of each asset class in your portfolio or even the single components in each class. This depends on your citizenship, your residency, your professional background, your international experience, your age, your family, your risk aversion and many more factors. If you have specific questions please contact us at email@example.com.
For more details please click for the following blogs:
Portfolio risks your financial advisor is unlikely to talk about
Build a crisis portfolio that can withstand different scenarios