Feb 18, 2022
Preserving purchasing power isn’t exactly an easy task these days.
Consumer prices in the U.S. rose 7.5% year over year in January — the highest reading since February 1982. Simply put, if your salary didn’t increase by at least 7.5% over the past year, you essentially received a pay cut.
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The situation is equally challenging for investors.
While the S&P 500 gained 27% in 2021, it’s down 9% year to date. Even high-flying mega-cap growth stocks like Netflix and Meta Platforms are deep into correction territory.
So how should investors position themselves in 2022?
According to rising star researcher Lyn Alden, founder of Lyn Alden Investment Strategy, playing defense is still the best approach.
“I think if someone is diversified and rather defensive, they can avoid some of the more severe scenarios,” Alden said in a recent interview with Stansberry Research, “while still participating in some of the markets that are actually pretty cheap and that have some growth.”
The investment strategist went on to highlight several assets that investors can use to diversify their portfolios. Here’s a look at them.
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Gold
As a classic safe-haven asset, gold has helped investors preserve their purchasing power for centuries. The yellow metal largely traded sideways in 2021, but Alden still likes it as downside protection in specific economic scenarios.
“I think it's a reasonable hedge, basically, that would be a play on the Fed not being able to tighten as much as they're forecasting,” Lyn said. “If that event starts to occur, you probably would expect a weaker dollar, stronger gold.”
Geopolitical risk, such as the one posed by the ongoing conflict between Russia and Ukraine, is another reason why Alden suggests looking into gold.
“Gold tends to move on these crisis events.”
One of the easiest ways to invest in gold is through ETFs like the SPDR Gold Shares and the iShares Gold Trust.
Individual gold mining stocks are another option. When the price of gold increases, miners like Barrick Gold, Newmont and Freeport-McMoRan typically thrive.
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Diversify nowBitcoin
Bitcoin continues to be one crazy rollercoaster ride: It traded around $32,000 at the start of 2021, surged to over $68,000 in November, but is now down to $41,000.
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That kind of volatility isn’t for everyone. But for the next few years, Alden is “structurally bullish” on the world’s largest cryptocurrency. Specifically, Alden believes that the mainstream adoption of bitcoin will persist in 2022 and beyond.
“So first, it was peer to peer. And then it was the early exchanges that had trouble getting bank access, and then it was the more regulated exchanges. And then it was the more institutional-grade custodians and larger pools of capital coming in. And I think that trend is still intact.”
It’s very easy to get exposure to the crypto world these days.
Investors can buy bitcoin directly, hold the ProShares Bitcoin Strategy ETF or consider companies that have tied themselves to Bitcoin.
Enterprise software technologist MicroStrategy, for instance, holds a total of 125,051 bitcoins — a stake worth over $5.1 billion. When the price of bitcoin moves, MicroStrategy shares tend to follow suit.
Energy
Commodity prices are commonly believed to be a leading indicator of inflation. So it should come as no surprise that one of Alden’s favorite ways to fight red-hot inflation is through the commodities sector.
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“If you have inflation, generally you're getting inflation in energy and other key industrial commodities. I think that remains an attractive environment.”
While the stock market has pulled back in 2022, the upward momentum in energy prices remains strong.
Year to date, WTI crude oil has risen 21.5%. And that directly benefits energy stocks: The Energy Select Sector SPDR ETF — composed of S&P 500 companies in the energy production, equipment and services industries — is up double-digits in 2022.
Alden primarily focuses on defensive values in the sector, such as energy transportation companies, infrastructure businesses and master limited partnerships.
If you don’t want to pick individual names, you can gain exposure to a portfolio of energy infrastructure MLPs through funds like the Alerian MLP ETF and the Global X MLP ETF.
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Jing is an investment reporter for MoneyWise. He is an avid advocate of investing for passive income. Despite the ups and downs he’s been through with the markets, Jing believes that you can generate a steadily increasing income stream by investing in high quality companies.
