Building a Portfolio for the Next Decade: Financial Assets vs Hard Assets
The next decade will not be like the last decade. This is where I'm putting my money to profit for the next decade...
Hello everyone! Eric Hyde here. 👇
As my wife likes to call me, “Dooooooorrrrk!” I don’t disagree. Lol.
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Okay, enough already…let’s get to work!
📝 This week’s longer form Tobin Report will cover the following:
Investing quote by Stan Druckenmiller, investor/hedge fund manager
“The Next Decade”
Investment implications - financial assets vs hard assets
Portfolio construction - what I’m buying for my kids
Let’s get to work…👷♂️👷♀️
"Never, ever invest in the present. It doesn’t matter what a company is earning, what they have earned. You must visualize the situation 18 months from now, and whatever that is, that’s where the price will be, NOT where it is today." — Stan Druckenmiller
The next 10 years will not be like the last 10 years.
We saw the last 10 years in financial assets; I believe the next 10 years will be the opportunity for hard assets. I’ll dive into what those are in just a minute.
So why do I believe this?
Inflation.
Inflation is not returning to the prior decade of 2% or lower. It just isn’t.
I know there is a lot to unpack in that statement, but I’ll condense it to this: deglobalization and money printing.
The Fed can’t control energy costs, which are rising. The Fed can’t control government spending, which is always rising.
Do you think the government will slash spending and agree to spending cuts in the budget? Reduce Medicare? Social Security? Pensions?
Of course not.
From 2010-2020 the average annual inflation rate was well below 2%.
Not anymore.
As stated by the Fed, the current inflation target is 2% and they “will do anything to get there.”
But at what cost? Keep raising rates and crush the banking system? The bond market?
👉 Or raise the inflation target to 4% and celebrate when we get there? The bond market is already pricing in almost 1.00% in rate CUTS.
I believe the Fed chooses the latter.
It is my opinion that inflation is NOT going back to 2%.
So how does one successfully invest in this environment? 👇
Investment Implications
If this higher inflation thesis is correct, you’ll want to be invested in hard assets. 👉 Real assets you can see, touch and feel. Not financial assets such as growth stocks where investors are paying 25x future potential earnings and dependent on a LOW interest rate environment.
We are no longer in a low interest rate environment. Gone. 💨
So what do I mean by hard assets and financial assets?
Financial Assets 📈 vs Hard Assets 🛢🏡
🎯 Financial assets:
intangible, represent a claim to future cash flows, categorized as securities that are traded in financial markets.
✔ Examples of financial assets:
Stocks: Equity investments in companies that represent ownership in a portion of the company and its earnings.
Bonds: Debt securities that represent a loan to a company or government entity and pay a fixed or variable interest rate.
Mutual funds and ETFs: Pools of money that are invested in a basket of stocks, bonds, or other financial instruments.
Options: Contracts that give the holder the right to buy or sell an underlying asset at a specified price.
🎯 Hard assets:
Hard assets are tangible, physical assets that have intrinsic value and can be used to generate income.
✔ Examples of hard assets include:
🏡 🏠 Real estate: Land, buildings, and other physical properties that can be rented out or used for business purposes.
🥇🥈 Precious metals: Gold (as money), silver, platinum, and other metals that are used in making things (think vehicles, for example)
🌲⛽ Natural resources: Oil, gas, timber, uranium and other resources that can be extracted from the earth and used for energy or manufacturing.
🌽 🌾 Commodities: Agricultural products, such as wheat and corn, or industrial metals, such as copper and aluminum, that are traded on commodities exchanges.
Caveat: the stocks of companies that produce hard assets are the area I see opportunity for leverage, even though “stocks” are in the financial assets category.
If you believe inflation is here to stay, then investing in tangible assets with intrinsic value that offer a form of income or productive value in society is the way to go. This is not just my opinion, but historically proven true during times of higher inflation.
What IS my opinion is the idea that inflation is not going away.
I welcome all other views on this matter and do not claim to be absolutely correct. At the same time, my research has given me the confidence to put my money where my mouth is.
Based on the hours upon hours upon hours of research and due diligence I have conducted, I continue to mold my portfolio for the next decade of hard assets, much like technology was the story in the last decade.
Please do your own research and due diligence.
Portfolio Construction
As a result of the above information, I constructed a portfolio for my two young boys in their E*Trade accounts.
I added to a few positions and initiated several others. The idea behind this is to create something that will set them up for success in the coming years.
I feel extremely confident in the diversification of their portfolio. Dividends. Value. Hard Assets. ALL at low valuations with significant upside potential.
Here are the positions I added and the coinciding charts:
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