When times are good, investors look for assets that grow quickly and attract attention among consumers with money to spend. However, successful portfolios also consider the proper amount of assets that are more resilient during financial crises and downturns. While these assets typically do not produce dazzling returns during normal times, they protect investors when poor conditions inevitably come around. In this article, Rory Brown, Lydian founder discusses the asset classes and sectors that hold up best under stress.Cash
While we may not normally consider cash as an investment, under severe economic conditions, liquidity often provides the greatest safe harbor. Cash can be instantly converted to goods and services necessary to ordinary day-to-day life and can manage necessary expenses like mortgages, rent, transportation, and insurance without interruption. Consider six months to a year of necessary living expenses in cash to be an essential part of any portfolio’s safety section. Cash also allows investors to move quickly to acquire the bargains that inevitably come up during economic crises.Gold
Gold has consistently seen positive growth during every financial downturn of the twentieth and twenty-first centuries. Gold is both a strong hedge against loss during bad economic times and a growth asset during those conditions as well. Gold has the classic attributes of money in general: it is a superlative way to store value and it is very liquid in any economic condition. While equity assets always face the possibility that they may go bankrupt or become worthless, gold will always have value as money in civilization.Utilities Stocks
Utilities are usually considered the go-to equity investment for poor economic conditions. Utilities are typically conservative and slow-growing companies with highly inelastic demand. Corporate and individual users will consume fewer utilities in hard times, but there is a predictable floor for demand. The supply chain for utility services is generally highly resilient, and these firms are less susceptible to significant disruption due to interest rate increases or inflationary pressure.Healthcare
Like utilities, healthcare as an industry produces a relatively inelastic good. Given recent events with the coronavirus pandemic, it is also obvious that the US federal and state governments will support the domestic production of healthcare products and services aggressively during economic downturns. As an asset class, healthcare is a strong performer during both robust times and when the economy in general is suffering.Real Estate
Real Estate is typically highly sensitive to actions by the Federal Reserve to keep interest rates low and promote liquidity. However, consider the downside of financing real estate purchases at possibly inflated prices and deflated interest rates. Real estate is a valuable holding asset during a downturn but can become a very poor investment asset if market values decrease as interest rates increase to combat general market inflation.US Treasuries
As long as the US dollar remains viable as the world’s reserve currency, US Treasuries are a very safe store of value over time and will carry long-term investments safely through financial crises. If the dollar suffers severe inflationary pressure however, the low rates paid on treasuries will erode their value before maturity.About Rory Brown
Rory Brown currently serves as a Managing Partner of Nicklaus Brown & Co. and was a co-founder of VirtualBank in 2000. VirtualBank began as an early adapter of technology creating platforms and interfaces for customers of financial institutions to access financial accounts and records through the internet. VirtualBank has grown to be a multibillion-dollar company, named “Best Online Bank” by Money Magazine. Rory Brown is also the co-founder of Lydian, which garnered him recognition by Ernst & Young as Financial Service Entrepreneur of the Year. Mr. Brown received a Master of Business Administration from the University of Charleston and is a Certified Public Accountant. He has focused on financial technology and investment management for over 30 years. In his spare time, Mr. Brown studies the history of the Lydians, the first people to use gold and silver coinage.
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