The Five Assets That Will Protect Your Portfolio

A bear's case for buying stocks... 'A market of stocks'... Quality stocks versus speculations... The S&P 500's high-wire act... Running hot... It's time to diversify... The five assets that will protect your portfolio...

Today, let's flip things on their head...

Every Friday, I (Dan Ferris) warn Digest readers that U.S. stocks are expensive and risky... Then I mention briefly that you should stay invested in the market.

My warning still holds. I'm still bearish in the broad sense. But today, my main focus will be why I'm still buying stocks and recommending you do the same.

Since December 2020, I've expressed much concern off and on (mostly on...) that U.S. stocks are in risky territory. As I've frequently pointed out, previous instances when stocks reached similarly stretched valuations were followed by bear markets.

But also since December 2020, Mike Barrett and I have made 55 separate new buy recommendations in Extreme Value (a 56th will arrive next Friday), including the nine picks in our Ultimate Commodity Hypercycle Portfolio that's exclusive for Premier subscribers.

I've made another 30 buy recommendations of individual stocks and equity funds (not including bonds, gold, silver, and other alternative assets) in The Ferris Report since its inception in December 2022.

So what gives? How can I be bearish on stocks and keep telling you to buy them? The answer is simple...

I'm only bearish on the stock market, not on stocks...

As a friend of mine likes to point out, "It's not a stock market. It's a market for stocks."

If your head is spinning from this semantic nuance, here's the idea...

When I (or most other financial writers) say "stocks" or "the stock market" in general, we're usually talking about the S&P 500 Index.

The index is 500 of America's biggest companies, which together make up roughly 80% of total U.S. stock market capitalization.

But the index's value is weighted by market cap – skewed by a handful of mega-cap holdings, notably the "Magnificent Seven" tech stocks. When you put a dollar into the S&P 500, you're mostly buying those few stocks, with the tiniest bit into its smallest holdings.

The S&P 500 is too expensive. The S&P 500 is a risky place for your money.

But you don't have to buy the S&P 500. You don't have to own the market.

Individual investors like you and me have an advantage over bigger players...

Giant institutions with trillions of dollars to invest need stocks that are big enough and have enough liquidity for them to enter and exit without disturbing the market price.

Even Berkshire Hathaway (BRK-B), with mere hundreds of billions to invest, is severely limited in the stocks it can buy. No matter how wonderful a business might be, if it's not big enough, Warren Buffett's company has to take a pass and try to find something that can move the needle on its huge asset base.

But you don't have to worry about any of that. Even if you have millions to invest, you're not going to move the needle on the smallest S&P 500 stock, which has a market cap of more than $5 billion.

According to data compiled by Bloomberg, more than 14,500 stocks trade on U.S. venues. And nearly 7,100 of them have market caps of $50 million or more, meaning they're big enough for an individual investor to trade.

Since size is not an issue for folks like us, we can focus on other important aspects of the businesses we buy...

First, focus on higher-quality businesses and steer clear of speculative ones...

You can see the difference in performance by comparing the iShares MSCI USA Quality Factor Fund (QUAL) with the highly speculative, lower-quality stocks in the ARK Innovation Fund (ARKK).

As of yesterday's close, ARKK has risen 75% since the tariff-tantrum bottom on April 8, while QUAL is up 18%. But look at the two since the pandemic bottom on March 23, 2020...

ARKK flew out of the gate and was up more than 300% by February 12, 2021. In that same time, QUAL rose about 75%.

But ARKK is filled with speculative tech companies that burn cash. Some have little or no revenue. If you buy that fund, you're not investing in businesses with real cash profits. You're speculating on risky new businesses trying to make risky new technologies work. Many of them will fail.

It's no surprise that ARKK crashed. It fell nearly 81% from peak to trough, falling back below its March 2020 lows. It's still around 55% below its 2021 peak. Meanwhile, QUAL fell 29% from peak to trough, always remained at least 49% above the pandemic bottom, and is now about 160% above its pandemic lows.

Speculative garbage looked pretty sexy at the top... and ended in disaster. Quality started out boring, remained boring, and earned investors a good return with less risk.

It reminds me of a breakfast presentation I attended years ago, hosted by hedge-fund legend Joel Greenblatt. His firm researched the 10-year performance of several investment managers. They found that the worst-performing managers after five years had become the best after 10 years.

I've said it before, and I'll say it again... Investing in stocks is about finding great businesses and holding them for the long term. What looks sexy in the short term is often a disaster in the long term.

Besides owning great stocks, you need assets that will help protect you in downturns...

As I've said before, everybody needs to be truly diversified...

Corey McLaughlin and I talked about that very topic in our recent interview with our colleague, senior analyst Alan Gula. You'll hear the whole discussion on an upcoming episode of the Stansberry Investor Hour.

Alan is a brilliant analyst and investor who is partially responsible for Stansberry's Total Portfolio, which he says contains "get-rich stocks" and "stay-rich stocks." The former group consists of higher-quality, capital-efficient businesses, while the latter contains various assets that perform well when stocks don't.

As Alan explained, the "stay rich" part of The Total Portfolio includes bonds, gold, silver, managed futures, and some cash. (I've made similar recommendations in The Ferris Report.) Alan made a special point of saying that folks really need to be fully diversified right now.

The S&P 500 is in bubble territory, and you never know when the market will break.

A recent Bloomberg report underscored the riskiness of putting money into the S&P 500...

The S&P 500's extremely stretched valuations hang on the so-far unshakable strength of the Magnificent Seven, leaving the market balanced on a high wire where any slip – whether from these giants, a missed rate cut or an earnings slump – could trigger sharp disappointment. The index has outpaced our macro model-based fair value for a record stretch since 2022, as their dominance has unhooked the usual links between economic conditions and market pricing. The last time this historically reliable model missed by this much was during the tech bubble in 2000.

Do you really want all your money in an asset that's "on a high wire where any slip... could trigger sharp disappointment?"

Since you can't predict the market's next move, you can't just sell all your stocks and wait. You have to hang on to those great businesses as they grow revenues and profits, make acquisitions, pay dividends, buy back stock... and do all the other things you count on them to do.

But you can't pretend that you'd have no problems sitting through an extended bear market... or even worse, a decadelong sideways market.

I've warned about sideways markets many times because I promise you, after your money has been essentially dead in the water for a decade or more, absolutely nobody will be rushing to buy the dip. It would be a major, once-a-generation reset.

Bonds have already disappointed investors, with the benchmark iShares 20+ Year Treasury Fund (TLT) still trading nearly 49% below its pandemic-era peak.

In other words, bonds have failed to be the portfolio hedge they'd been for the previous few decades.

With government debt high and rising, and inflation remaining above the Fed's 2% target for 50 months in a row, longer-term U.S. government bonds might be riskier than ever.

You need an alternative to the usual all-stock or stock-and-bond portfolio...

You should add four other assets to the mix, along with high-quality, attractively valued U.S. stocks...

Foreign stocks are great diversifiers.

They've underperformed U.S. stocks for several years. But they've come to life more recently, as President Donald Trump works to reorder global trade. As I've noted in previous Digests, these efforts will also change global investment flows.

Since Trump was elected on November 6 of last year, the SPDR MSCI ACWI ex-U.S. Fund (CWI) is up 9.6%, beating the 6.2% rise in the S&P 500.

And yet, foreign stocks remain much more attractively priced than their U.S. counterparts.

Gold and silver are great diversifiers.

Precious metals disappointed folks during the 2021 inflation bump... But gold has delighted those who hung on, rising as much as 88% off its October 2023 lows. Silver is up 74% during the same period.

Both metals have huge gains ahead over the next several years. This is just the beginning.

Treasury bills are great diversifiers.

They don't go up, but they don't go down when everything else falls in value, either. You'd have loved earning 4% to 5% per year in T-bills during the volatility of the past three years.

Managed futures ETFs are great diversifiers.

These are ways that individual investors can get easy access to commodities and other nontraditional investments – without holding stocks.

You'd have loved holding one of these funds during the 2022 bear market. The one I've recommended in The Ferris Report rose nearly 40% during the bear market, while stocks tanked.

Stocks of high-quality U.S. businesses, foreign stocks, gold and silver, T-bills, managed futures...

That's what true diversification looks like today. If you want to know what to do with your investment portfolio, this is it.

If you want to do something else, that's fine – as long as you understand how much risk you're taking.

And you don't need any exotic private investments to diversify, either. You can buy every asset I've just mentioned through highly liquid, publicly traded individual stocks, funds, and trusts. In other words, it's easy to build a truly diversified portfolio.

If you're not truly diversified, now is the time...

Speculative juices have been running hot since April 8. The S&P 500 is up a blistering 23% since then and will likely make new highs by the time you're reading this. But more speculative assets are truly on fire.

Bitcoin is up about 40%. And as I mentioned before, the ARKK fund – which is loaded with companies that likely won't even exist in several years – is up a staggering 75%.

In other words, the current rally since April 8 smacks of sheer desperation, like the headiest days of the 2021 bubble that took the S&P 500 down about 25% and the Nasdaq Composite Index down more than 30%.

The CBOE Volatility Index ("VIX") – the fear index – has collapsed to 69% below its April 8 peak... falling from 52 to about 16. That's below its long-term average of about 19.5.

In the past two weeks, more people have been talking about the "bank of QQQ," according to Google Trends. The idea is that the Invesco QQQ Trust (QQQ) – which tracks the Nasdaq 100 Index – is as safe and certain a place for your money as a bank account.

I assume the folks saying this are too young to remember when it peaked in March 2000 and didn't recover until 2015.

When the world is zigging this hard, you want to at least have some amount of zag in your portfolio... especially when the zigging assets are on shaky ground.

As the folks at Research Affiliates recently pointed out, any strategy that performed well in the past several years got a boost from rising valuations. That can't last forever. And when it finally turns around, it usually does so with a vengeance.

You probably know my mantra by now...

Prepare, don't predict.

True diversification is the ultimate expression of that advice. It prepares you for whatever lies ahead. In good times, your "get rich" assets rise in value. And in tough times, your "stay rich" assets preserve the wealth you've built. You don't need a crystal ball to make this strategy work.

I'm not saying a truly diversified portfolio will never experience a drawdown. Here's what I will say... When the stock market underperforms, you'll almost certainly beat the folks who've loaded up solely on the S&P 500, Nasdaq, and highly speculative stocks.

Owning the big indexes and their star components – the Magnificent Seven – has been the no-brainer, easy-money trade for a long time.

You can't time the market, but the timing for diversification has never been better.

New 52-week highs (as of 6/26/25): Broadcom (AVGO), Alpha Architect 1-3 Month Box Fund (BOXX), Cameco (CCJ), Cisco Systems (CSCO), Disney (DIS), iShares MSCI Emerging Markets ex China Fund (EMXC), Cambria Emerging Shareholder Yield Fund (EYLD), FirstCash (FCFS), iShares Convertible Bond Fund (ICVT), iShares U.S. Aerospace & Defense Fund (ITA), JPMorgan Chase (JPM), Kinross Gold (KGC), Microsoft (MSFT), Neuberger Berman Next Generation Connectivity Fund (NBXG), Skeena Resources (SKE), Spotify Technology (SPOT), Global X Uranium Fund (URA), Vanguard S&P 500 Fund (VOO), Vanguard Short-Term Inflation-Protected Securities (VTIP), and Industrial Select Sector SPDR Fund (XLI).

A quiet mailbag today. Everyone must be enjoying the start to summer... If you have a comment or question, as always, e-mail us at feedback@stansberryresearch.com.

Good investing,

Dan Ferris
Medford, Oregon
June 27, 2025