By MoneyMorning.com.au
Let’s be honest, in today’s world economy anything could happen. But put simply, the current state of global debt means a debt default of a major European economy, would most likely send stock prices crashing.
In that case, the last thing you’d want to own would be stocks. You’d be an “Outie” – out of the market. But…
The other “solution” is more of the same. Where central banks and retail banks get away with increasing the money and credit supply… and individuals and businesses regain the appetite for debt.
In that case, stocks may not crash. They may go up – just as they did in the good old days. In that case you’d want to be an “Innie” – in the market.
Of course, you should remember, the main reason for the 1980s, 1990s and 2000s bull markets was the credit boom.
And the reason why it’s harder – but not impossible – to invest now is because we’re going through the fallout from those three booms.
That’s why we believe there’s a third possibility. That is, an actual debt default won’t happen. Instead, European bureaucrats will come up with more crazy plans to just about keep their zombie economies afloat.
It’s now three years since the global economy collapsed in 2008. The government intervention was supposed to lead to a speedy recovery… the alternative would have been unacceptable. That was the story anyway.
But odds are, as we go through the fourth, fifth, sixth and tenth anniversary of the Great Economic Collapse, things won’t be much different to today.
That’s what makes it hard for most investors. You’d be mad to invest in stocks… but equally as mad not to invest in stocks.
This brings us back to our long-term market advice. You’ve got to actively manage your wealth. As we’ve said before, that doesn’t mean diversifying. Instead it means concentrating.
Weighting your portfolio towards investments where you shouldn’t lose any money (after all, capital preservation is the number one rule to investing). You can call that your “risk free” or “limited risk” portfolio if you like.
But then you need to complement this with risk bets… small cap stocks, leveraged blue-chip trading… anything where you can get more bang for your buck. Heck, even a weekly lottery ticket should be part of this!
The key to the risk bets is to make sure you don’t over-expose yourself…
…Which is the beauty of small cap stocks. You can get leveraged returns without taking out a loan. And, unlike other forms of leverage, you know your maximum loss if things don’t go right.
In short, the secret to making anything out of this market is to have two portfolios – something for safety and something for a bit of excitement.
Cheers.
Kris.
P.S. I don’t know if you’ve seen the email. But right now you have a limited-time chance to look over all my latest small-cap stock tips for FREE… for 30 days. If you’d like to know more, click here…
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From the Archives…
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2011-11-10 – Kris Sayce
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2011-11-09 – Kris Sayce
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Lighting a Match to Inflation
2011-11-07 – Kris Sayce
For editorial enquiries and feedback, email moneymorning@moneymorning.com.au