Looking ahead, if the economy starts to experience runaway inflation, history shows it makes sense to hold real assets. A decade ago, Investment Advisers Stephen Leeb and Donna Leeb wrote a very informative book on how to profit from the “Turbulent Post-Technology Market Boom.” The book, “Defying the Market,” discussed how to protect against deflationary and inflationary scares, comparing investment ideas that were likely novel to many people in their day, including energy, food, gold, and small-cap stocks.
One table listed the performance of these investments during an earlier era when Americans faced high inflation — the 1970s.
In that decade, gold, silver and oil outperformed many other areas of the market. Gold stocks rose 28% on an annualized basis and oil companies grew 14%. The S&P 500 Index, on the other hand, grew 8.4% on a nominal basis. After factoring in sky-high inflation of 8.10%, gold and oil still added significant real returns. The real return of the overall stock market, on the other hand, was nearly zero.
“Stocks leveraged to growth, such as the oils and oil drillers, did splendidly. But the big-cap stocks [i.e. the general market] … were complete duds,” wrote the Leebs.
While it is still too early to tell whether investors will see “That ‘70s Show” again, one valid consideration to protect from inflationary measures is an allocation to real assets like commodities.
To cover all your commodity bases, seek an investment that selects resources stocks across 10 diverse industries, including oil services, exploration and production companies, as well as precious metals stocks. We believe this approach offers you the possibility for better growth with lower volatility.