What to Own as the U.S. Dollar DiesPortfolio / Investing 2014 Jul 04, 2014 - 02:35 PM GMT
Dr. Steve Sjuggerud writes: So... if the dollar "dies"... what do you do with your money?
In yesterday's DailyWealth, we looked at "The Coming Death of the Dollar." But we didn't cover what you should do with your money to protect yourself.
In Jim Rickards' book, The Death of Money, he has five recommendations. More specifically, he has an asset allocation of five different investments that have stood the test of time in previous inflations and deflations.
Jim says this portfolio should offer "an optimal combination of wealth preservation under conditions of inflation, deflation, and social unrest... while providing high risk-adjusted returns..."
So what's in it?
Jim's recommended "Death of Money" portfolio is:
10% fine art
20% alternative funds
Let's take a look at each of these in a little more detail...
Gold (20%) should do well in extreme inflation... AND deflation. Jim recommends that you physically own gold itself – not an exchanged-traded fund (ETF) or a derivative.
As for land (20%), Jim prefers undeveloped land. Jim believes that land like this "can be developed cheaply at the bottom of a deflationary phase, and provide large returns in the inflation that is likely to follow."
For fine art (10%), Jim is talking about "museum-quality" art. He specifically excludes things like antique cars and wine. He says "a $10 million painting that weighs two pounds is worth $312,500 per ounce, over two hundred times gold's value by weight, and will not set off metal detectors."
I personally asked Jim how he recommends that people buy the kind of art he's talking about. He told me there are art "funds" that hold museum-quality art. (www.TheFineArtFund.com is an example.)
For alternative funds (20%), Jim is NOT talking about traditional stock market investments. Instead, he is talking about funds with very specific strategies... including "long-short equity, global macro, and hard-asset strategies that target natural resources, precious metals, water, or energy." These are typically hedge funds, but there are ETFs that do similar things. (An example would be the IQ Hedge Multi-Strategy Tracker Fund (QAI)).
I was surprised to see cash (30%) make up such a high percentage of Jim's recommended allocation. Jim makes the case for it... Cash is "an excellent deflation hedge," it is basically "the opposite of leverage" in your portfolio, and it allows you to "pivot into other investments on a moment's notice."
"Cash might not be the best investment AFTER a calamity, but it can serve the investor well UNTIL the calamity emerges." He recommends owning "the Singapore dollar, the Canadian dollar, the U.S. dollar, and the euro."
As I said yesterday, the picture Jim paints in The Death of Money is pretty scary stuff. I don't know if he will turn out to be right or wrong... But to me, Rickards paints the clearest picture of what is possible with the dollar, along with what to do about it.
As he wrote: "Although these scenarios are dire, they are not necessarily tomorrow's headlines. Much depends on governments and central banks... But when the crash comes, it will be better to be among those who have braced for the storm."
So, if you are worried about a collapse of the U.S. dollar, you may want to start incorporating some of Jim's advice into your own portfolio today.
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