Defensive Investing: Guard Your Capital in Uncertain Times
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- Опубліковано 20 тра 2024
- Investing during a market rally is easy but during periods of economic uncertainty things are more complicated. If you are intent on preserving your capital then you may wish to consider a tilt towards defensive investments. In this video, I look at how to do that in various scenarios and also consider which funds may provide you downside protection.
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Timestamps
00:00 Introduction
00:32 Defensive Investing
01:03 Risks
02:22 Inflation
06:11 Credit Crunch
11:31 Recession
14:32 Defensive Funds
19:47 Conclusion
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DISCLAIMER
All information is given for educational purposes and is not financial advice. Ramin does not provide recommendations and is not responsible for investment actions taken by viewers. Figures that are quoted refer to the past and past performance is not a reliable indicator of future results.
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Thanks PC, shared with the gang at Crypto GB.
Ramin content is great but his voice sends me to sleep so I use the videos as a sleep aid 😂
Thanks!
Welcome! @StanimirTodorov
Ramin did the point! 😁
I am not a professional investor but it seems to me that now is exactly the time to invest, when everything is nice and stable and risk free investors will have missed the boat. Personally I would stay invested in equities, drip feed every month if you like but stay out and you will miss it, just a thought.
@pensonCraft I note that in the Feds Stability Repot (@~7:30) REITs have very low debt levels at the moment. If there is a credit crunch, wouldn’t REITs be set to benefit with cheap realestate prices?
Ramin, can you please tell us what the US available version of the LF Ruffer fund is? I can't seem to find it.
Please try to maximize the charts and text size, so that they can be read on small screen - it's always good to see your Face, but francly I know it pretty well 😅 thanks for the great content!
It might be better to ask for a download of the slides. Then you can examine them in detail and at your leisure. But I suppose his Patreon members get those as goodies.
i was advised to buy physical gold and silver, which i did. ive stored gold in a deposit box and the silver at home. i used 10% of my investment fund. this is insurance, not an investment.
In a recession everything goes down. EVERYTHING.
I came across a novel idea of shorting daily leveraged ETF pairs (short both the "bull" and "bear" funds). If the daily volatility is high relative to the magnitude of movement over the rebalancing period then the strategy can outperform due to "volatility decay". This works best when volatility is high and shorting costs are low. One article suggested that weekly rebalancing short 3x S&P 500 ETF pairs would have worked well recently but not prior to 2000. Maybe monthly would work better but I'd be sceptical of this strategy. A curious idea nonetheless.
A less esoteric approach is to buy a low-volatility or minimum-volatility fund.
I hadn't heard of this strategy, but a quick search for "shorting daily leveraged ETF pairs" turns up a wealth of interesting links. The results seem to be highly dependent on the rebalancing strategy, but it's a really cool idea :)
Did not understand a word, but thanks mate
@@chrisf1600 Yes, it's interesting but an unusual strategy that warrants caution. Not something to jump into.
Very helpful video, as always, do you think a global aggregate bond fund is the way to go in the current climate, seem to have the best of both worlds?
Interesting, but what about JEPI - I didn't see any mention of enhanced dividend investing - which is fairly defensive. Unfortunately as a UK investor one can't buy JEPI.
Dividend investing is the poor mans temptation.
4:07 Gold hedges monetary inflation not CPI inflation. It ran up to $2100 in August 2020 'predicting' the large M2 growth which then became a sell the news event. The M2 growth and associated gov't spending was mostly what caused CPI inflation with a 18 month lag reflecting the increase in prices that gold 'predicted' 2-3 years earlier. Few understand that gold is the leading indicator of inflation not coincident...
I think gold will continue its role as a wealth preservation.
Surprising that XLK and XLU are equally correlated to growth!
Inflation linked bonds sound good.
👍I simply accept that stocks are volatile, bear markets are temporary buying opportunities so keep investing.
Fax
But this isn't a bear market. It's a hype market, where AI is likely to be the Bitconnect of the Equities market. The whole market is inflated by the hype around the tech stocks. Nobody's looking at the fundamentals. Instead, the FOMO blinds many people, and they're missing other sound indications that a global recession is becoming more likely, and the UK will get it's Reversion to the Mean as a deflationary recession too. That will negatively impact the market for AI products and development. The danger is very real that insiders arw pulling in punters to fill their coffers before credit gets squeezed right down, once the recession bites hard. So, learning how to hedge by diversifying asset allocation, and looking for opportunities away from just buying overpriced stocks, would be wise. Yes, buying value is the thing, but always hedge, because the Equities market is a casino, not a sure thing.
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Thanks @Tom Otto
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I bought an inflation linkrd bond in 2019 (way before the current inflation levels) and since then it crashed in value. Went from 20 to 13, so not what it said on the tin at all.
great video again Ramin! at 15:20, is the accumulating cost of the puts in these funds what they call "roll"? Gundlach likes even more of a tilt than 60/40. he says 60% fixed income, 20% equities, and 20% some kind of real asset. his reasoning is that bonds have more upside than stocks at this point and if there is a credit crisis with many bankruptcies stocks will fall more. i feel simplistically that bond investors always measure risk versus return and equity investors less so to an unknown degree. to me that difference makes bonds look better. of course this would have been terribly wrong in 2022 so go figure :)
Hi @agsmith001 the puts generate income rather than cost, but it is a sort of roll cost I suppose. Another name for it might be a positive carry "cost". However, roll usually relates to buying futures positions where you have to roll from one contract to the next to maintain exposure to an asset price. That's an interesting point about risk sensitivity being different for bond and stock investors. Thanks, Ramin.
After a period of underperformance during the Covid rally Ruffer decided to put 2.5% of assets on a Bitcoin bet. I wouldn’t invest in a fund manager that makes those kind of decisions even if the flip of the coin worked for them on that occasion.
REITs aren't the same as holding real assets, like real estate, as the market is super liquid and you can sell anytime, unlike real assets which are low volatility. Also the principal of one's debt decreases in real terms if you have a mortgage during inflation.
That's no comfort if you can't service your mortgage because you've been made redundant. And the Bank won't take that reassurance as payment. As the UK is largely variable rate mortgages, remortgaging as a way to save money is going to be very difficult to pull off, as lending criteria tighten even more.
@@BigHenFor Just be invested in RE all the time then.
Ruffer looks very expensive 7.5% entry charge and ongoing charge 1.21% any comments Ramin?
History shows that no two recessions are the same. Personally, I'm not convinced we're heading for recession as sterling is rising making imports cheaper. But longterm the main issue appears to be demographic and a shrinking workforce in the developed world. Demand may fall because older people buy less but also supply may fall due to a labour shortage, though at different rates. And this is the ideal opportunity for AI and robotics to take up the slack. Question is whether the technology is there yet to perform intricate tasks.
My firm are implementing AI currently which means a document that would take 8 hours to turn around will take a fraction of the time if performed by AI - pretty scary tbh.
I disagree with Ramin over REITS. Yes, at first there is an intial shock downwards. But the supply of commercial property is fluid and supply of properties reduces significantly following the shock. Fewer builds and more abandoned properties as they become too expensive to maintain. And with new net zero regulations being implemented soon the supply of properties that meet those regulations is going to reduce further. Plus the fact REITS are now more diversified than ever before. The performance of REITS during the periods of high inflaiton in the 70's and 80's was really good. So I view REITS as a good punt.
Completely different retail environment to the 80s tho. Most products and services are easier to buy online nowadays. Workforces are remote working more, boomer populations dying off. REITs have long term headwinds IMO.
The fastest way to double your money has always been to fold it in half and put it back in your pocket!
Are not times always uncertain? Surely there is no such thing as defensive or offensive investing only good (make money) or bad (loose money)?
Why hedge for inflation as opposed to investing in things that will be better when inflation is under control and interest rates are reduced?
My portfolio come what may……,,,Vusa 60% and VHYL 40%. Overlaps of course but two fundamentally different ETFs.
In Bogleheads' embrace, defense takes flight,
Three funds unite, shielding day and night.
Stocks for growth, bonds provide solace,
Cash for stability, a fortress of promise.
With simplicity and low costs as guide,
Secure foundations, with peace abide.
Nice poetry, I like the meter you use and the triple rhyme of flight, unite and night. Educational too!
My compliments to chat gpt ;)
No matter how you cut it, the benefits of these assets don’t outweight the benefits that stock have over the long term, even in the downturns the stocks are still net better off
Buy money market funds while rates are high. Simple.
Exactly, low risk and get north of 4.9% in US
Gold is a not good investment 😅… it is only stayed stable in 2022 when stock market crashed and all other currencies lost value against US dollar 🤪
Long term you are probably correct. But If there is real blood on the streets and the dollar sells off, Gold will do v well. A small allocation in the region of 5-8% long term is not a bad idea imho.
I agree with you, but Tying up your money due to the current crisis and recession is not a smart move either, I deeply invest in stock ans other currencies too but with the help of a well-known professional 😉
Nonsense. It's gone up almost tenfold since 1999. No other mainstream investment has equalled it. As long as governments continue to trash their currencies and recklessly accrue debt, gold will continue to rise.
I picked a random year, in this case 1995. Gold ran in the $300's for the entire year. Seems like it's gone up since then (when I first bought it)
Nah. Just follow the price with trend following.
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Thanks @d b
lets see how the gold comment holds up in the future.
Sorry I've got to crticise Ramin for his statement about buying inflation linked bonds. Some years ago he made a video about buying a fund of inflation linked bonds to protect against inflation. But he got it wrong and these funds fell sharply when inflation hit. They offered no protection. Now he advises buying a single bond. But the majority of us are dealing with funds provided by pension providers. There's no option to employ money in those pension funds to purchase a single bond. And I've yet to hear a decent explanation as to why inflaiton linked funds fell sharply. I'm told it was because of their long maturity. But that makes no sense to me because regardless of maturity, inflation hits all assets equally across the same period. Inflation on a 20 year IL bond is no different to inflation on buying 4 x 5 year IL bonds.
Bond funds probably fell because yields went up (I guess there was a rate hike?). The problem with bond funds/etfs is that they contain old bonds with lower base yields so as new higher yield bonds are emitted, your etf suddenly becomes less valuable because it's full of lower yield stuff. The only way to make inflation linked bonds work is to buy the single bond and be ready to hold it to maturity, in which case you're sure you'll get your money back + the inflation adjustment. Or at least wait till close to maturity as the pull to par should kick in and value should get closer to nominal. The difference between 4-5yr and 20yr bonds is that with a yield curve inversion, there's a much sharper rise of yields on the short end of the curve than on the long end, so newly emitted short/medium term bonds turn everything else into trash...
@@Irnbeard No, you've completely misread what I wrote. I made it quite clear I was referring to a fund of inflation linked bonds, not fixed rate bonds. Try reading first before responding.
@@stevo728822 inflation linked bonds prices are affected by rate changes too...
@stevo728822 Yes, I'm afraid @irnbeard is right - You shouldn't be too quick to criticise. The impact of inflation and the impact of interest rate rises are separate things that pretty well always occur together because central banks inpose the latter to curb the former. Linkers protect against inflation (if kept to maturity) but not against the latter, as @irnbeard described, whether they're in a fund or stand on their own.
Linkers are ultimately just bonds and the biggest risk to any bond is raising interest rates (duration). Yes they have an inflation linked payoff but the losses from duration overpowered the inflation payoff hence alot of people lost money here. The rate and speed of interest rate hikes was quite incredible hence the instrument couldn't protect investors like it should have done.
Permanent Portfolio for me. Simples 😊. Read Craig Lawson’s book about it
dollar will be weak when intrest rates come down
Global equity- minus china
That's what I want; meanwhile I invest in the developed world indexes.
There's no Protective Puts Fund made available by my pension providers. And I doubt 99% of other people have that option either. Maybe SIPPS, but just maybe. So bit of a waste of time talking about them.
I've watched your videos for a while now and have enjoyed them. Historically I'm an index investor mixed with a tiny bit of bonds. Just stack away and watch it grow.
I have recently learned way more about bitcoin then I ever thought I would though and it's not a joke and it's not going away. I think you need to reconsider your position on bitcoin as a new investment. I watched your very old video on 'crypto' and it was lackluster and frankly uneducated which is a deviation from what you normally do for your videos. Bitcoin is secure, it's decentralized, it's non government money and like I say it's not going away. It's not getting hacked. It's going to continue to grow and absorb Fiat money and cause problems. I recommend you give some other very smart people a listen on bitcoin and dive into it. I'm not a bot. I'm just a normal person who has discovered bitcoin as a very viable investment option. You''re smart enough where you'll get it eventually and it will click. Lyn Alden, James Lavish, Balaji, Parker Lewis, Alex Gladstein, Marty Bent, and of course Michael Saylor are good people to listen to. Give it a chance! Or at least make another video of your thoughts on Bitcoin....
What’s your ratio / weight to bonds exposure as a percentage in your portfolio, may I ask - 5%?
@@VoiceOfThe 0% and planning to keep it that way.
@@lahawtho
You said above you have a tiny bit?
@@VoiceOfThe That was true then. I had a target date fund at that time that had a little bit, but I completely sold that target date fund. Right now I have 0% dedicated exposure unless it's somehow through VTSAX. Aside from short periods of time for T bills/Money market accounts I think Bonds are a losing bet. Monetary inflation will be higher than bonds payout over the next 30 years. Plus you have to be concerned about bond portfolio losing a large amount of its value as interest rates ratchet up and down. Not just the bond yield. The next 40 years won't be the same as the last 40 years in my opinion. You can review some other economist minds like Luke Gromen or James Lavish or Lyn Alden if you want to get some other opinions. I believe their opinions to be correct.
@@VoiceOfThe I did but don't anymore. I sold my target date fund. Bonds aren't going to return positive real yield when you account for inflation over the next 30 years. IMO. You can listen to Luke Gromen, Lyn Alden, James Lavish if you want to learn more.
Bond is a debt instrument and during inflation and recession it will collapse so don’t count on it to save your asset 😅
Historically long dated US government bonds have been an excellent way to downside risk your equity.
@@Eli-vf7io
Not in 2022.
In a recession it should be fine as rates will be cut and they'll appreciate in value, not to mention flight to safety premium.
Sorry, but that idea is mistaken. Where do you think the money exiting bank Depositors have put into Money Market funds is going into? When you talk about bonds, you have to differentiate between the different types, as they all have different risk profiles.
Sovereign Bonds - Treasuries, T-bills/notes, and Gilts, etc. - have the lowest risk profile of all, especially for countries whose economies are run conservatively.
Sovereign debt is backed by the taxpayer, and therefore are as good as cash. This is why if you want to borrow in the international capital markets right now, you will need collateral, and that collateral will have to be in the form of sovereign debt bonds.
They are not accepting commercial bonds, a.k.a. Junk Bonds, nor mortgage backed securities. The best are US Treasuries, as they are denominated in the global reserve currency and accepted everywhere.
As an investor, adding sovereign debt bonds into your portfolio is something you need to think about carefully. You don't have to buy sovereign debt bonds, as there are T-bills ETFs available. But if you want to own some, Treasury bonds, can provide income that matches inflation or even beats it. This why the yield of US T-bills is over the rate of inflation. But once Janet Yellen starts issuing the tranche of T-bills later this year, that situation may change for new investors.
China and Japan used to be the biggest buyers of US Treasuries, but now are in a diet. As Uncle Sam needs the dough very soon, it might be a good idea to lock in the coupon rate before then. As they are generally illiquid assets for retail investors, you should need to understand your own investment schedule and buy the right type of asset.
@@george6977 you’re right, this is why now is the time to be buying them, after they have sold off so much.
Just pay off your house
Being ruthlessly rational, this is usually suboptimal. But it is better emotionally arguably
@blumousey
And safer if you lose your job and interest rates keep rising. You ensure you will not lose your house but you forego the opportunity of compounding wealth more.
@@blumousey Emotional stability can lead to sound financial decisions once the fear is taken away.
Much more likely a business venture or family decision will be made wisely if you know your home is secure, and risk taking holds fewer consequences.
@@george6977 Additionally, the British welfare system works in such a way that if you are made redundant or become long term sick (genuinely Ill) you must use all your savings before any support is available.
If you have paid off your mortgage but have little savings you are entitled to benefits.
Not that you would hope for life to go that way, but it is a U.K. specific consideration.
Funds for downside protection? Sounds like active investing sir. Active managers do not consistently out perform markets. Why make a bet on a manager instead of just holding the market! You discussed easier to use funds? You serious? Crap advice IMO
yes, your opinion. 😂
@@helixvonsmelix no literally not. Literally data based peer reviewed research sir
@@JohndoeUK1234 read rick ferri’s post on commodities.
You should think before you make rude comments like this. He said it can be part of your portfolio, not the whole. It’s called hedging, there is plenty of data validating this approach when valuations get extreme.
You should apologise.
And plenty of active managers have beaten the market consistently.
Which active funds beat the market consistently? How do you spot them? Do they accept small investors?
You ended that well. Buy and hold. Sit tight when chaos hits and you will win in the long run.
Thank you @Crimson Pirate
How you can try and sell that ruffer dog of a fund is beyond me. I just checked on HL and itd 0% growth since sep 21 and a TER of 1.13%. Would rather burn my money. We need advice not pushing crap funds onto us all.