Soaring inflation and three consecutive “jumbo” interest rate hikes, which affect credit cards, mortgages, auto financing, and other variable-rate loans-not to mention a spate of recent sell-offs in equities markets-have prompted many consumers to wonder when the stock market will recover.
One commentary from an influential investor has made major waves over the past couple of weeks. So, what was his harrowing stock market recovery prediction? And what can investors do to safeguard their portfolios?
When Will the Stock Market Recover?
Not any time soon, according to Stanley Druckenmiller, a legendary investor who predicted a flat stock market for the next decade in a recent interview with Palantir CEO Alex Karp. Druckenmiller cited the following reasons for why he believes a flat stock market is imminent and the odds of a global recession are higher than they’ve been in decades:
- Soaring inflation
- Climbing interest rates
- The continuing war in Ukraine
Druckenmiller, whose former hedge fund famously delivered an annual average return of 30% between 1986 and 2010, drew parallels to the stock market’s flat trading from 1966 through 1982 to describe what he thinks is coming.
[row][col columns=”3″][/col][col columns=”9″]How to Invest During Inflation (and Why It’s Important)[/col][/row]
In this post, we cover three strategies to help you preserve your portfolio’s value when inflation is high.
2 Lessons from Druckenmiller’s Prediction About When the Stock Market Will Recover
There are many lessons to be learned from Druckenmiller’s prediction. Two standouts are the value of portfolio diversification and the importance of holding a long-term view of market performance.
1. Portfolio Diversification Is Vital
While current market conditions are undoubtedly bleak, Druckenmiller offered a glimmer of hope, noting that there were companies that performed well during the flat trading period between 1966 and 1982. For example, Apple and Home Depot were founded during that time.
And that’s the good news: Not all assets are correlated with the stock market. In fact, many alternative investments actually move opposite of the S&P 500 during times of stock market volatility.
[row][col columns=”3″][/col][col columns=”9″]What Does It Mean to Move Opposite of the S&P 500?[/col][/row]
For example, when the S&P 500 shed 30% during the Great Recession, farmland investments saw, on average, gains of 16%. Read AcreTrader’s recent guest post to find out why.
Other alternative investments trusted by many ultra-wealthy and institutional investors include:
- Startups, private equity, and venture capital
- Fine art
- Real estate
- Crypto, which Druckenmiller suggests could see a resurgence if distrust in central banks grows
Regardless of your alternative investment of choice, it’s becoming increasingly important to ensure your portfolio is diverse, which means spreading risk by investing in a variety of assets. This type of strategy can ultimately prevent your entire portfolio from tanking when one asset or asset class declines. However, this isn’t something you can achieve with mutual funds, ETFs, or index funds alone. That’s because the number of publicly traded companies in the U.S. has steadily declined since peaking in the mid-to-late 1990s, and almost all of the profits are thanks to 4% of stocks.
In general, companies are staying private for longer due to the rise of venture capital and private equity, two of the most common ways for companies to raise funds in private markets. This is why investing in companies before they go public is often the greatest opportunity for outsized returns and is just one of the alternative investment opportunities that can help investors create a truly diverse portfolio. (Plus, you never know. You just might catch yourself a unicorn and invest in the next Apple-or Figma.)
2. A Long-Term View Is Essential
Ramit Sethi said it best: “Real long-term investors know that you can’t time the market. Success is about time in the market.” Assuming you haven’t panic-sold your assets, you really haven’t lost anything. And if you invest in a retirement account like an IRA or 401(k), short-term fluctuations won’t matter over the long haul, particularly if your retirement is decades away.
For a fun blast from the past, check out BusinessWeek’s cover story from 1979, The Death of Equities: How Inflation is Destroying the Stock Market. As mentioned in the article, three years after the piece was written, the stock market bottomed out and began a “remarkable resurgence.”
Why a Self-Directed IRA Is a Solid Choice for Long-Term Portfolio Diversification
An individual retirement account (IRA) is often a natural fit for investors who hold a long-term view, as distributions cannot begin (without tax implications) until age 59 1/2. (Additionally, Roth IRAs must be open for at least five years before making withdrawals without penalty.)
However, unlike conventional IRAs, self-directed IRAs allow investors to diversify their portfolios beyond public markets by enabling them to invest in assets with varying levels of liquidity, risk, and correlation with the stock market. For example, one might invest in a startup and not see a return for five to seven years until the company has a successful exit, like a public offering, sale or acquisition, or merger.
Since alternative assets tend to be less liquid than more traditional investments, a self-directed IRA can be the perfect vehicle for smart investors aiming to create true portfolio diversification over the long term.
[row][col columns=”3″][/col][col columns=”9″]Roll Over Funds to a Self-Directed IRA[/col][/row]
Want to fund a self-directed IRA but don’t have enough cash in hand? Find out how to roll over funds from an existing IRA, plus three other ways to fund a self-directed IRA.
Expand Your Portfolio With Alto
With legendary investors like Druckenmiller making dire predictions about when the stock market will recover, it can be tempting to want to bury your head in the sand. But now’s the time to analyze your portfolio and consider ways to properly diversify your investments.
Thanks to Alto, everyday investors now have the opportunity to expand their portfolios in ways similar to ultra-wealthy and institutional investors. That could mean the difference between a decade of meager (if any) gains and one where you come out ahead. Take control of your financial future by investing with Alto in two ways:
- Alto IRA: Invest in a variety of private asset classes through our investment platform partners.
- Alto Crypto IRA®: Buy and sell 200+ crypto assets through Coinbase integration.
Create an account today to get started.
Investing in alternatives involves risk, including risk of loss of principal. Past performance and diversification do not guarantee future results. Do not invest without doing your research. Alto is an administrator and custodian of IRAs. Alto is not an investment advisor, broker-dealer or exchange.