And Now for Something Completely Different
Congrats on an epic run... Investing is harder now... Two great diversifiers... Our temporal asset-liability mismatch... On becoming a 'PT'... Too valuable to ignore... A new regime...
I hope you enjoyed the U.S. stock market returns of the past 15 years...
Here's a March 6 report by Connecticut-based hedge-fund group Bridgewater Associates...
Out of any 15-year period to be invested in equities dating back to 1970, the one we've just lived through was the best. Stocks (especially U.S. stocks) have been on a relentless tear, with any dips quickly fading into memory. Returns have been more than double the average. This run-up has enriched investors greatly.
That's great news for anybody who consistently contributed to their 401(k) or otherwise relentlessly bought U.S. stocks through every dip and bear market.
If that's you, congratulations. You've achieved an excellent result just by staying the course and not listening to... well... folks like me (Dan Ferris), who started getting worried about high valuations and speculative animal spirits in U.S. stocks as early as 2017.
Even though I successfully presaged declines in 2015, 2018, 2020, and 2022... it didn't matter over the long term, as long as you kept buying (which Mike Barrett and I fortunately did in our monthly Extreme Value service). Calling market tops and bottoms during this period was totally unnecessary... as it generally has been over the long term.
So again, congrats and great job.
But that's history. You invest today for returns you'll receive in the future...
Now the question is, can stocks keep up this performance – or anything close to it – for the next 15 years?...
It's a great question, and you won't like the answer. As Bridgewater also points out, the exceptional performance of U.S. stocks over the past 15 years makes it harder for them to keep outperforming. With everybody betting on the U.S., the return from investing in the U.S. will naturally be lower.
It's like what happens when everyone expects one sports team to win a game. As anyone who has tried their hand at betting on sports knows, when one team is favored a lot, you don't profit much just by betting on them to win – you need to bet on them to win by more than expected.
Similarly, U.S. equities' great performance... raises the hurdle to continue generating the outsize returns investors have experienced in the recent past and are implicitly positioned for.
So to quote Monty Python... "And now for something completely different."
Investors who are currently focused on U.S. equities will need to employ much greater portfolio diversification over the next 15 years if they want to maintain and grow the assets they've accumulated so far.
That's already starting to look like a great idea. In a recent interview for an upcoming episode of the Stansberry Investor Hour podcast, Verdad Capital's Dan Rasmussen mentioned that the current market volatility is only a problem for folks who aren't diversified. Those who are well diversified have had a much easier time.
For example, if you've owned European stocks since President Donald Trump was elected to his second term, you're up about 5% on average, compared with a roughly 3% loss for the S&P 500 Index. Dan says one of his company's funds has a 25% allocation to gold, which has obviously been a great choice.
He named gold as one of the best portfolio diversifiers, along with Treasury bills. That has certainly worked well over the past 12 months, with gold up about 36%, compared with a rise of less than 8% in the S&P 500. It's working even better since January 1, with gold up double digits and the S&P 500 down more than 5% during the period.
Diversification comes in many forms...
Past Investor Hour guest Cullen Roche of Discipline Funds made a similar point in his March 10 blog post called "The Importance of Temporal Diversification"...
We all have an inherent asset-liability mismatch in our financial lives because we spend in the present, but we accrue income and asset returns in the long-term. And so the better you can match your income or returns to your expenses the more predictable you can make your financial life...
We can't always afford to only think about 10, 12 or 20 years out. And so we all need some degree of even shorter temporal diversification.
Roche uses temporal diversification to structure client portfolios. He likes to define asset allocations by duration. He recognizes five basic duration categories: zero to two years, two to five years, five to 15 years, 15-plus years, and "uncertain."
Of that final category, Roche says:
Uncertain – this is your insurance bucket. It's there because the unknown happens. It's best matched to literal insurance (always buy term life insurance to cover a specific term of your life) or if used in a savings portfolio it can be matched to instruments that display insurance like features (typically options, tail risk funds, gold, etc.).
I know, I know... "Why didn't you tell me this before Trump started with the tariffs and cuts?"
Honestly, I did. I've been telling folks here and in The Ferris Report to hold plenty of cash, gold, and other assets that would likely not correlate to the U.S. stock market over the long term.
Our old friend Doug Casey has long encouraged geographical diversification...
That means having assets located in other political jurisdictions besides your home country. This is an age-old principle of the wealthy, who've been known to hold assets in safe havens like Switzerland, Hong Kong, and Singapore.
A true international man, Doug has been to more than 140 different countries and lived in several. During one time we spoke with him on the Stansberry Investor Hour, he was ensconced in his Uruguay compound. On a recent podcast, I heard Doug mention in passing a book he referred to only as PT.
I was intrigued and immediately found a copy and bought it. It's a 1985 guide to international living called PT: "Perpetual Traveler," by W.G. Hill. Though "Perpetual Traveler" is printed on the cover, Hill explains:
PT stands for many things, Perpetual Traveler or Permanent Tourist, for instance. However, a PT need not travel all of the time, nor any of the time for that matter. A PT merely arranges his or her paperwork in such a way that all governments consider him a tourist, a person who is just Passing Through. In the eyes of government officials, the PT is merely on a temporary sojourn or vacation. The advantage is that by being seen as a person who is Parked Temporarily, the PT is not subjected to taxes, military service, lawsuits, or persecution for partaking in innocent, but forbidden pleasures... PT is elegant, simple, and requires no accountants, attorneys, offshore corporations, nor other complex arrangements. It's the Perfect Thing.
I've never been a PT. I'm the most provincial person I know, except perhaps for a neighbor of mine who says he never travels at all.
Author/investor/attorney James Rickards wrote in his 2014 book, The Death of Money, that a basic diversified portfolio should consist of gold, land, fine art, alternative funds, and cash. He explained the term "alternative funds"...
Hedge fund strategies that are robust to inflation, deflation, and disorder include long-short equity, global macro, and hard-asset strategies that target natural resources, precious metals, water, or energy. Private equity strategies should likewise involve hard assets, energy, transportation, and natural resources.
Elsewhere, Rickards has discussed the old-money strategy of holding "a third, a third, and a third," meaning one-third invested in land, one-third in gold, and one-third in fine art – things that last.
Land is a permanent holding that will tend to rise in value to keep pace with inflation. Gold and art will also preserve and grow value, and they're portable in times of war or other political disruption. He says this is how many wealthy European families have maintained their wealth over hundreds of years.
There are other considerations when you assess how you'd like to diversify. For example, if you have a large amount of your assets in your company's stock, it might be prudent to ask yourself whether you should reduce that large concentration.
I'm not saying you necessarily should do that. If you're Warren Buffett, you probably don't need to worry about having your whole net worth in Berkshire Hathaway (BRK-B). The same could apply if you work for one of the world's other best businesses (or a company you own yourself) – you might not feel the need to reduce your holdings. I'm just saying you need to think about this more now than in the recent past.
I can't tell you what's right for you. Only you can figure that out. But my Stansberry Research colleagues and I can and do recommend alternatives that can help.
I do that each month in The Ferris Report, where I've recommended investments in gold, silver, T-bills, high-quality baskets of foreign stocks, mortgage bonds, and managed futures. We've even recommended gold, silver, and short-term Treasurys in our bottom-up, value-oriented Extreme Value newsletter. True diversification is simply too valuable and necessary to ignore, no matter what your core strategy might be.
However you choose to diversify, it's more important now than it was five years ago...
Back then, we were still enjoying the old regime, in which the U.S. was not in a trade war and interest rates were about to be slashed back to zero, igniting one of the wildest speculative frenzies in American history.
Even if the market took the S&P 500 down 25% or 30%, you could confidently buy every dip.
Then the pandemic stimulus pushed inflation to 40-plus-year highs, and interest rates rose dramatically. The Federal Reserve raised its benchmark federal-funds rate from a range of 0% to 0.25% up to 4.25% to 4.5% currently, much higher than the rates that prevailed from 2008 to 2022.
The 10-year Treasury yield went from 0.5% to more than 4%. According to Bankrate, the national average 30-year fixed mortgage rate soared from below 2.8% to as high as 8.08% and stands around 6.8% today.
Higher rates alone weren't enough to stamp out the buy-the-dip mentality, and investors responded to the 2022 bear market by pushing stocks to new all-time highs.
Then Trump was elected for a second term by both the electoral and popular vote. The narrative, which I don't think is wrong, is that his victory means voters are fed up with persistent, enormous government debts, deficits, waste, fraud, and abuse. He promised a radical shake-up, and voters stood behind that idea.
Trump recently warned there'd be a transition period...
Day after day, folks are watching his global trade war and his attempts to reduce government bureaucracy and waste unfold day after day. The market has reacted to the potential trade-war damage. Yesterday, the S&P 500 closed more than 10% off its all-time high close, with the Nasdaq Composite Index 14% off its high.
Too many folks have become accustomed to focusing their entire portfolio on U.S. stocks because of the incredible performance of the past 15 years. They're not ready for the regime change in financial markets that's unfolding before their eyes. As I continue to remind folks, bear markets can happen, and the next one could be a doozy. Too many won't react until it's too late.
Investors need to say goodbye to the old regime, which includes the now-popular idea that all the Fed needs to do is cut interest rates and everything will be fine again.
They need to remember instead that interest-rate cuts are a sign of slowing economic growth and historically have presaged bear markets in U.S. stocks. There's no reason to suspect this time will be different.
Diversification into other asset classes like gold, foreign stocks, and other alternative investments will help you navigate the chaos and uncertainty that is unfolding now and could easily last for several years.
At the peak of every bull market, everyone is convinced that "this time is different" and the party will never stop.
And it is precisely because it's not "different this time" that you need to start thinking about doing something different in your portfolio. The playbook from the past 15 years won't work forever.
New 52-week highs (as of 3/13/25): Agnico Eagle Mines (AEM), Alamos Gold (AGI), Alpha Architect 1-3 Month Box Fund (BOXX), Franco-Nevada (FNV), SPDR Gold Shares (GLD), Sprott Physical Gold Trust (PHYS), ProShares Ultra Gold (UGL), and Wheaton Precious Metals (WPM).
In today's mailbag, feedback on yesterday's edition from Digest editor Corey McLaughlin about the S&P 500 entering a formal "correction"... Do you have a comment or question? As always, e-mail us at feedback@stansberryresearch.com.
"Corey, good summary and excellent move to show and reference Stansberry high quality picks to be found in subscriptions. When we reach the real inflection point, one needs a list of choices, if one wants to beat a 10% pop in the [S&P 500]..." – Subscriber Bill B.
"I'm holding on to my cash to buy after Trump finishes bludgeoning companies' valuations..." – Subscriber Jerry I.
"Corey, you didn't mention the possible government shutdown as a reason for [yesterday's] market decline. I know we have been through this often before, but don't you think that was a contributing factor?
"Also, I don't tend to give Trump credit for much, but if his action with respect to the liquor tariffs results in European tariffs being removed, I will happily give him credit for that." – Subscriber Sherwin R.
Corey McLaughlin comment: Cheers to that as well... On your question, the government-shutdown risk may have been a factor for some stock market action yesterday. But you said it: We have seen this before...
The bond market didn't really react to the possibility in any meaningful way, either, so we decided against rehashing the idea. To me, nothing had changed from what we wrote the day before – about a "stopgap" funding agreement likely to be the result, kicking any serious discussion about budget cuts down the road again.
Good investing,
Dan Ferris
Medford, Oregon
March 14, 2025