Quote from TimeCorrosion:
I am trying to hedge in case of war, market crash, inflation, deflation, and depression. What do you think will preserve value or even increase in value in those scenarios?
Defense sector tends to go up in war times (like WWIII); commodities go up during inflation; but pretty much everything goes down in crash, deflation, and depression.
Any simple way to hedge against all these disasters?
If you are trying to hedge against the end of the world, then forget your portfolio. It will be every man for himself, and stocks will no longer matter. Might I also say that people have been foolishly preparing for an armagedon since the beginning of man, and they will continue long into the future.
However... If you are just trying to hedge against another run of the mill recession and deflationary period that we will eventually come out of, then there are many alternatives.
1. Many consumer staple stocks actually go up during a recession. Companies like Dollar General or Dollar tree are able to increase earnings because people trade down, buying cheaper goods. Companies like Wal mart or Proctor and Gamble see their stock increase not necessarily because of better earnings, but p/e expansion. Investors feel safer putting their money in these stable companies.
2. Different kinds of bonds. You won't get any capital appreciation but you won't get any capital depreciation either if you hold to maturity. And, you get paid interest on your principal while you wait that recession/depression.
3. Out of the money Put LEAPS. Buy 3 years out and roll after each year passes. Between 2-3 years on leaps there isn't a ton of time decay.
3. Inverse etfs. Tracks the opposite of an index such as S&P or The DOW. Don't buy leveraged inverse etfs though.
4. Gold. Gold almost always goes up for the same reason as Wal-mart and P&G do. Safety. Although right now gold is not cheap, and some are even calling it a bubble. So I'd be careful with that.
5. The dollar. Again, same reason as Wal mart or Gold. Safety.
6. Shorts. Just have a few more short positions to go with your longs. Good hedges would be to short companies that would get hurt badly by another recession. Example: Expensive stores that cash strapped consumers will avoid, like Saks or Nordstrom. Cycle industries that get hammered in a recession, like the auto industry.
7. Cash. Not very exciting, but is a pretty great investment during times of panic and deflation.
I'm sure there are plenty more, but these are the most common and easiest to put on. You have seven choices there. I'm sure one or two of those could fit into your portfolio. Hope that helps.
