Given all the current global challenges such as inflation, political unrest, and mounting debts, it can be overwhelming to determine where to invest. While some may be tempted to buy gold, ammunition, and fallout shelters, I believe there's a better strategy to consider—one that is more practical and applicable for most people.
Let's start by identifying three key risks that we need to mitigate: inflation, currency fluctuations, and political instability. Although these terms oversimplify the associated risks, they provide a foundation for building a plan and exploring effective long-term strategies. By considering these risks, we can develop personalized investment principles.
Inflation Risk: Inflation refers to the decline in the purchasing power of wealth over time, and it plays a significant role in investing. For instance, according to data from https://www.usinflationcalculator.com, $100 in 2000 is now worth $176 in 2023. This highlights the substantial risk associated with investments like certificates of deposit (CDs) or money market accounts, which may seem safe but can actually pose significant risks over a 20-year period.
Currency Risk: Although we often overlook this risk unless we're traveling, the value of a country's currency affects its economy in numerous ways, including imports, exports, travel, and debt servicing. Moreover, when a country experiences issues (as seen with Mexico several decades ago), it can have a ripple effect on global markets.
Political Risk: One word encapsulates the concept of political risk: Venezuela. While this may be an extreme example, unfortunately, similar situations are not uncommon. Venezuela was once one of the richest and fastest-growing economies in South America, attracting smart investors. However, its subsequent decline serves as a stark reminder of the risks associated with political instability.
Large multinational corporations like Nestle, Coca-Cola, Exxon, Procter and Gamble, and Kimberly-Clark Corporation also face these risks. Investing in such companies can serve as a long-term strategy to mitigate these risks. By allocating a small portion of your investment portfolio (relative to your overall net worth) to a diversified selection of these companies, you can view it as a risk mitigation strategy specifically targeting the aforementioned risks. It's important not to gauge the success or failure of this portion of your investments solely based on returns or overall market performance but rather as a means of addressing the three identified risks.
As with any investment, it's crucial to align assets based on time horizon and purpose. This is where "The Bucket Plan" comes into play. While I won't delve into the details here, the basic premise is that each investor should have separate buckets for their short-term, medium-term, and long-term goals. Buying shares of multinational corporations should align with a long-term (i.e., ten years or more) objective within this framework, thereby helping to mitigate the three specific risks mentioned earlier.
To summarize, while I haven't provided specific investment amounts or recommended companies to invest in, I hope this discussion has given you some ideas to consider. If you'd like more detailed suggestions or an overview of how this strategy integrates with "The Bucket Plan," please feel free to contact me via phone or email.
DISCLOSURE - All written content on this article is for information purposes only. We utilized ChatGPT and other sources for this article. Opinions expressed herein are solely those of Core Wealth Consultants. Material presented is believed to be from reliable sources, however, we make no representations as to its accuracy or completeness. Core Wealth Consultants, LLC a Registered Investment Advisor in the States of Florida, Indiana and Michigan. You should always consult an attorney or tax professional regarding your specific legal or tax situation. Diversification and asset allocation does not assure or guarantee better performance and cannot eliminate the risk of investment loss.