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By Gregory Mannarino, TradersChoice.net
If you follow my work, then you know that I strongly advocate having an investment portfolio which is divided into both risk-on assets, as in owning a large cap. dividend paying companies’ stock, AND being “hedged” by owning risk-off assets, as in physical gold, silver, platinum, and palladium.
**I also advocate for having some of your investment portfolio allocated into cryptocurrencies.
Having your investment portfolio structured in this manner “insulates” you from suffering major losses in the event of a shock to the financial system.
The next question is this. overall capital distribution.
As a general way to structure your investment portfolio, consider allocating 1/3 into risk on assets, 1/3 into gold, silver, other precious metals and 1/3 into cryptocurrencies. You can of course move these numbers around, allocating more or less investable capital into a particular asset class, but I still strongly believe that you need to be hedged—holding both risk on and risk off assets simultaneously.
**If having cryptocurrencies in your portfolio is not for you that’s fine—you could then allocate your capital in other ways. For example, a 50/50 distribution risk on/risk off. Or 60/40, 70/30. Or weighted more heavily into precious metals. Every person should consider for themselves how they would like to “stay hedged,” understanding most importantly that they should BE HEDGED.
How a shock to the financial system will INITIALLY, play out.
The key here is INITIALLY.
At the onset of an initial shock to the financial system several things always happen:
- Capital seeks “safety.” Invariably capital will make its way into debt, as in U.S. Treasury bonds and the U.S. Dollar—this in turn causes risk on assets/stocks to sell off.
- Capital also finds its way into risk off assets, as in gold, silver, and other commodities.
**Regarding cryptocurrencies. This asset class is too new to reliably track how it consistently reacts to an initial shock to the financial system—what we do know is cryptocurrencies are extremely volatile. In my opinion, in the event of an initial shock to the financial system, cryptocurrencies would be even more volatile.
Staying hedged is the key.
Every investor/trader should be very aware that there is inherent risk involved when putting capital to work via investments. Therefore, one must have a portfolio structure which can withstand a shock to the system at any given time.