In yesterday’s Daily, we showed you a simple exercise to strengthen your portfolio against volatility in the stock market.
We called it the “barbell portfolio.”
On one side, you load your portfolio with 50% stocks. On the other side, you balance it with 50% gold.
Over the last 20 years, the barbell portfolio outperformed holding stocks or gold individually… with much less volatility.
In a simple barbell portfolio, you could load the gold side with a combination of bullion and an index fund like the SPDR Gold Shares ETF (GLD).
On the stock side of your barbell, you could weight it with the SPDR S&P 500 ETF (SPY) or a mutual fund.
Now, you could get your required 50/50 mix just by doing that.
But we promised to show you a better way to increase barbell portfolio returns.
You just need to replace the two sides of the barbell with “heftier” weights…
Boosting Your Gold Load
Let’s start with gold…
Instead of loading your barbell with a combination of bullion and GLD, replace that with gold royalty companies.
A royalty company helps finance mines and processing plants. In exchange, the royalty companies get a percentage of sales or a percentage of metals from the mine.
Royalty companies can increase in value even if the price of gold goes down. Gold miners don’t.
You only want to own miners when you think the price of gold is going up. Right now, it’s okay to own gold mining stocks. But most miners are bad long-term investments.
Royalty companies are better over the long term because they can spread risk in a way that mining companies can’t.
Most miners (especially junior miners) have only one or two mines. If one of those doesn’t pan out, the miner goes under.
But a royalty company can finance 10, 20, or more projects at one time. This diversification helps royalty companies earn profits more consistently.
In the past 20 years, royalty companies have outperformed gold.
In fact, just swapping out gold for royalty companies in our barbell portfolio doubled our returns.
The drawdowns in this portfolio are a little steeper than those in a physical gold portfolio. But a bit more volatility is a worthwhile trade-off to double your returns.
There aren’t many royalty companies out there… We found only 10 that we can invest in. Here are the five biggest:
- Franco-Nevada (FNV)
- Silver Wheaton (SLW)
- Royal Gold (RGLD)
- Osisko Gold Royalties (OR.TO)
- Sandstorm Gold (SAND).
Now, let’s turn to stocks…
Boosting Your Stock Load
In a simple barbell portfolio, you could own SPY or a mutual fund. But just like the gold side, we can increase the returns on the stock side, too.
All you have to do is substitute SPY or a mutual fund with the Daily Elite 25.
If you combine our Elite 25 with royalty companies, you can really juice your returns. Just look at the results over the past 20 years:
After 20 years, an initial $10,000 investment would have grown to about $340,000. That’s eight times more than investing in just the S&P 500 and gold.
Now, we can’t guarantee these results will happen in the future. But the best indicator of whether a strategy will work in the future is whether it has worked in the past.
Our barbell strategy dominates the buy-and-hold strategy Wall Street force-feeds investors.
It’s also a safer way to invest. More on that tomorrow…
Nick Rokke, CFA
Analyst, The Palm Beach Daily
Speculators are holding up oil prices…
Right now, money managers have their largest position ever in oil. They are long over 1 billion barrels.
Funds have propped up the price of oil as much as possible. When this trade unwinds, oil prices will get crushed.
Augmented Reality Is Near: We’re hearing more rumors that the next-generation iPhone will include augmented reality (a mixture of real and virtual worlds). Some reports suggest that users will be able to point the iPhone 8 at an object and the device will be able to identify what’s in frame. Once Apple rolls out augmented reality in its signature iPhone, the technology will hit its critical mass adoption point (MAP). We told you how to profit from the virtual reality technology MAP cycle right here.
Banking on Financials: Last week, we told you that the financial sector was on a tear. And we’re not the only ones who took notice. Per FactSet Research Systems: The top 50 hedge funds in the United States bought $3.5 billion worth of financial stocks in the fourth quarter of 2016. Bank of America was the most popular. Daily analyst Nick Rokke says President Trump’s move to deregulate the financial sector could send the industry 151% higher. You can get his take here.
Taxing the Robots: Microsoft founder Bill Gates says if robots take over most of the jobs that humans do now, they should be taxed. “If a human worker does $50,000 of work in a factory, that income is taxed. If a robot comes in to do the same thing, you’d think we’d tax the robot at a similar level.” This raises an interesting question: Can automation be taxed without representation?
Editor’s Note: Do you agree with Bill Gates that robots should be taxed like human workers? If so, will representation in Congress come next? Let us know what you think right here…
From John M.: I just love what you all are doing at the Daily. I read your Elite 25 and wanted to know if you could recommend which company would be the best to invest in?
Nick’s Reply: Thanks for the message, John. We haven’t done a deep dive into all the companies in our Elite 25, so we can’t recommend any individual one. The beauty of our three-step system, though, is that it weeds out the bad companies… and only identifies the best that are selling cheaply. We can buy all 25 on the list without knowing any more than that.
However, we realize that not everyone can buy 25 companies. That’s why we highlighted 11 companies that would give you a nicely diversified portfolio. You can view the entire list here.
From Troy L.: I really enjoy Palm Beach Confidential. Editor Teeka Tiwari does a great job explaining the process of buying cryptocurrencies. I’ve been closely following the blockchain and bitcoin markets with much “amateur” enthusiasm since 2014. I appreciate that your team has devoted time to explore this emerging and growing decentralized money market. It’s becoming more and more real…
From Randi S.: In response to your question: Are you confident the economy is going the right direction under President Trump (February 17 Market Briefs)? My answer is a resounding NO. We’ll probably see growth at first. But if tariffs come into play, then there will be suffering across the board… With the exception of the oligarchs.
Take a look at the chart below. What if you could spot these huge gains in penny pot stocks PERFECTLY before a huge stock surge? It’s possible… but first, you should listen to these instructions…