In our age of constant interactivity, you could easily see a weekly letter like mine as a quaint one-way monologue. But in fact, I’ve always treated Thoughts from the Frontline as a conversation with friends like you. Sometimes we disagree, but we keep talking.
I get your end of that “we” from the many readers who send me questions and comments. I read them all even when I can’t reply – which is what happens when my letters strike a chord. The e-avalanche responding to just-concluded series on Ray Dalio’s How Countries Go Broke book is a good example.
Today we’ll turn the tables as I respond to you. The Dalio series produced unusually good, thought-provoking questions. I’ll answer some below. But first…
Living Longer, Live Better
One of my top priorities is to keep our dialogue going as long as possible. I want all of us to stay on this mortal coil as long as possible.
I’ve written for years about how we’ve entered a new age in which the science of aging is moving from inside the lab to real life. Over the past decade and especially the last twelve months, as you know, I’ve had a front-row seat. Between opening our new Lifespan Edge clinics and launching the Transformative Age letter, I’ve been absorbing information seemingly faster than ever. I watched friends, readers, and even family members start to benefit from therapies that didn’t exist a decade ago.
Still, some roll their eyes when I bring up “longevity science.” I get it, but it’s not science fiction anymore. From plasma exchange to AI-driven molecule design, to even simple at-home practices like heat therapy and red-light exposure, we’ve entered a new era of biotechnology, one where we can begin to tune our own biological engines and sidestep much of what we used to consider “normal aging.” My friend Dr. Mike Roizen keeps pointing out that YOU are the genetic engineer for yourself. How you live and what you do, the therapies you choose all turn on and turn off specific proteins. And we are now a place that we actually know a great deal about the ones we want to change.
If you’d like to read the story of how this all began and where it’s headed, I just published a reflection here, marking the first anniversary of our biotech and longevity letter, Transformative Age. It’s a look back at how far we’ve come, and a glimpse of where we’re headed next.
What To Do?
My series on Ray Dalio’s book raised a bunch of questions, one of which stood out above the others. To paraphrase, readers asked “How do we get ready for this?” A few examples:
“All fascinating. But again, not ONE word of WHAT IS AN INVESTOR SUPPOSED TO DO? Apparently even money market funds are no longer safe! Hope at the end of all this you come up with some sound ideas for the ordinary investor's benefit to protect his assets/purchasing power.
“John says we still have some time to prepare - but how?”
“Hi John, great article and explanation of the Debt Cycle in our future. Please spend some time in future articles about how to ‘Prepare while you can,’ i.e., good investment areas vs. bad investment areas.”
“You wrote there is still time to prepare for the upcoming debt crisis. Please elaborate on methods of preparation.”
To be honest, I invited this when I said the crisis Dalio (and others) expect is probably still a few years off. I described it as a comforting thought; it gives us time to prepare. But I didn’t elaborate, as the readers above rightly noted.
This was partly because, for various legal and practical reasons, making specific investment recommendations isn’t my role at Mauldin Economics. We have a wonderful set of highly talented analysts in our other publications who do it far better than I would. I’m more of the big-picture guy.
That said, it is certainly fair for you all to ask what I am personally doing to prepare for the big picture I anticipate. It’s tough to answer because the coming debt crisis could unfold in many different ways. The answer isn’t as simple as “buy this, sell that.” Getting through this crisis is going to require a philosophy of investment that endures over time, not following the latest fad or trend.
It’s also not entirely about investment choices. No matter what happens, you’ll want to be in a community to whom you can turn for help and support – and/or to which you can contribute help and support, if you’re able. Invest some time in making sure you live in the right place. Make the right local connections there. Shane and I have found a wonderful community here in Puerto Rico. Your circumstances will certainly differ from ours, but if you’re not where you want to be, maybe work on getting there?
As for investments, I’ll give you several general ideas that should shape your thinking.
1. It’s not the end of the world. The authors and analysts whose cycle studies we pay attention to all point out we’ll get through whatever crisis they foresee. That means your investment philosophy should have as a core principle that you want to have assets that will be valuable on the other side.
Take something as simple as real estate. A home will still be valuable in 2035. So will other desirable properties. Depending on your personality and need for liquidity, real estate and especially income-producing real estate may be reasonable for part of your portfolio. That’s just one example.
2. Flexibility will be critical. The social, political and especially economic circumstances of the coming crisis are unclear today. I can make very good arguments for both inflation and deflation, and at various levels. My strong base case is that the dollar will still be valuable as the reserve currency, but history teaches that can change. Your cash position today will probably not be the cash position you have in the future. Your assets may shift somewhat. Individual companies that you are in love with today may have problems in the future. Flexibility matters.
3. With the exception of a few more clued-in readers, you are likely going to need help. Most people don’t wake up in the morning thinking about markets and macroeconomics in the future. And you shouldn’t. But I would suggest you need someone on your team who does, and who has a philosophy consistent with yours and understands intimately your particular circumstances. They should have demonstrated ability to evolve as circumstances change. More on that below.
What I’m Doing
Number 1: Dividend-paying stocks. I am migrating my portfolio to dividend-paying stocks. Essentially, I am betting on America. Our most iconic companies are going to make it through this crisis. You can (and should) be diversified by sector, but you want to own profitable businesses who are in the habit of not only regularly distributing those profits to shareholders but have increased those dividends every year for decades. And of course, they are still reasonably valued. If you want to take some long shots on growth companies that aren’t yet profitable, fine. I have several such stocks. But I keep the bulk of my equity portfolio in dividend payers.
Number 2: Your own business. Nothing beats having a steady income stream generated by your own capital and entrepreneurial efforts. There are a million ways to do this. For some investors, it is simply a matter of saving money and putting it into conservative investments. I once sat down with two high school teachers at the end of their careers. They had lived well within their means, and 20 years ago had already accumulated $2 million inside their pension programs, just from savings. The income from their portfolio was more than their needs. Their “business” was teaching and saving the money from that. They loved what they were doing and by any reasonable measure, were successful and happy.
Aside from the income, you will find it pays dividends to your health and happiness, too.
Number 3: Gold. I’m not what you would call a goldbug, but there is a reason governments and central banks stuff their vaults full of it. You can use ETFs or store some gold coins at home or at your bank. Please don’t tell my kids, but I use Hard Assets Alliance to buy and store physical gold for my grandkids. I deposit a certain amount each month in their gold accounts in Switzerland. They are too young to buy insurance, so I buy it for them.
People keep asking “What percentage should I have in gold?” There’s no correct answer. I don’t think of gold as an investment but as central bank insurance. Around 2-5% of your portfolio depending on your personality is probably enough. If there is a true inflationary crisis you will wish it were 50%, but that’s not the best long-term bet today.
Number 4: Alternatives, Real Estate and Fixed Income. I have and will continue to own a significant amount of alternative investments in the form of hedge funds and private credit. These are flexible instruments that can generate income in a variety of circumstances. But they have to be watched like a hawk. In some of my businesses we have significant portions of our short- and midterm cash in treasuries. For certain individuals, fixed income and private credit make sense.
I can’t emphasize enough that there is no one-size-fits-all. You have to have a very flexible investment advisor focused on your individual needs. If yours essentially puts all of their clients in the same portfolio, then find a new advisor. I can’t say it any more bluntly than that.
You want your investment advisor to have the flexibility to give you access to real estate (either directly or through a fund), private credit and other instruments. If they can’t, find someone who can. Plus help you with planning and other wealth management needs.
There are plenty of investment advisors who would meet my criteria. The choice of an investment advisor will likely be more critical than asset classes and portfolio design. Take your time and do it right. I spent a long career analyzing investment advisors and funds. By now, you know that I believe that investors should seriously consider working with The Bahnsen Group. If nothing else, they will give you a base of comparison.
David writes a daily newsletter called Dividend Café. His Dividend Café today is a very good explanation of private credit. You should subscribe and get to know their philosophy. To talk directly with one of their team, click here.
I did a podcast with David talking about their investment philosophy. There is a reason that they have grown tenfold in the past 14 years—not just outstanding results, but some of the best customer service and the ability to take small clients right on up to the largest family offices and provide the services tailored to meet their needs. You can watch the podcast here or you can read a transcript here.
This is probably the best way to get a full view of the way I am structuring my portfolio. David’s investment philosophy truly reflects my main concerns, and he has demonstrated the flexibility to change when events change. If something happens and I am not here, then I know Shane is taken care of. Just saying.
Unstable Situation
Now let’s look at some questions on other topics. This reader wanted me to say more about Dalio’s distinction between money and credit.
“I think the first concept to understand is not the difference between money and credit but the difference between money and currency. Money is a commodity used as a medium of exchange for goods and services. Currency is a government-issued coin, paper bill, or digital token used as a medium of exchange for goods and services. Money cannot be created, but currency can be. And therein lies the problem. Currency is not an honest medium of exchange. It ‘lends’ itself to all manner of the worst of human nature, making the financial system based on it nothing but a growing sand pile that will eventually collapse. I believe that history shows that all currencies fail. It also shows that money does not.”
These are fair comments. I would respond that in the real world we inhabit, “money” and “currency” are the same thing, for all practical purposes. The vast majority of transactions take place via some government-issued currency. In most cases we have little choice.
Whether a government-issued currency is honest money is a deeper question. It is certainly prone to manipulation. The reader is correct that currencies become unstable and eventually fail. We still have to use them because everyone else does.
In a situation as unstable as I think the Great Reset will be, knowing who you can trust will be harder than ever. The best answer I have is to diversify your exposure. And be flexible! You will be making course corrections, or you should be.
Next question:
“Haven't we already reached ‘Stage 8’ extraordinary taxes with our new sales tax, more commonly called tariffs?”
The reader refers to Dalio’s point that, near the peak of the crisis, governments often employ extreme policies to stave off disaster, one of which is new and extraordinary taxes. Are Trump’s tariffs a sign this is happening?
I don’t think so. I think the tariffs as currently constructed are not the best idea. That being said, I don’t believe that it is politically possible to balance the budget, or at least bring the deficit below nominal GDP, without raising taxes. Tariffs aren’t my favorite consumption tax, but they also aren’t the kind of desperate measure Dalio described. That part of the crisis is still to come.
“Thanks for an excellent letter. I only vaguely understand what will happen to the government. What will happen to me / the public? My government pension, my state pension, my mortgage, my car loan, my savings, the stock market, Social Security, Medicare, my car loan, my job? Should I move to Mexico? As you say, ‘Prepare while you can,’ but I am not sure how all this government monetization and restructuring will affect my life. In a broad sense, what should we be doing?
I feel your frustration. All of us are in a tangled web of relationships with various institutions, funds, government programs and private businesses. Any of them could change or even disappear as the crisis unfolds. Often there’s no practical escape.
If a substantial part of my income were coming from a defined-benefit pension of some kind, I would probably be looking into lump-sum distribution options. (I have moved all of my IRAs, etc., to custodians that allow me to control the portfolio, and then I let Bahnsen manage it.) That might at least give you more control so you can move the assets to safer hands. But it could also have drawbacks, so talk to a financial planner or other expert.
Will Social Security and Medicare survive? Those are multi-trillion dollar questions They will stay with us in some form, but they will certainly change. I expect means-testing, increasing the retirement age, and a whole host of things none of us will like. We are past the point of having easy ways to fix them.
This whole letter is a topic that needs to be expanded upon. We will do that in the future.
New York, Tulsa and Dallas
I will be in New York next weekend with several meetings and then Monday and Tuesday will be dedicated to our new Inner Circle group, where we will spend two days in deep conversations talking to some of the real thought leaders as we think about the future. Two weeks later I will be in Tulsa for Thanksgiving and will likely go back to Dallas when my new grandson is born, if nothing else to be with Shane who is going to wait until her first grandchild is actually born.
We are opening the Lifespan Edge clinic in Dorado either late this week or early next week. I will get yet another Therapeutic Plasma Exchange (TPE) procedure and Dr. Mike Roizen will likely fly down and get another as well. Mike wrote in a recent newsletter that he feels better than he has felt in 40 years. If you have not looked at what TPE can do for you, you should read our white paper (link below).
Think of it as an oil change for your body, getting rid of the old proteins and microplastic junk you don’t want in your body, which cause inflammation and worse. It’s especially critical to read our paper if someone in your family has been diagnosed with Alzheimer’s or dementia, as TPE just might be the best treatment available right now. Early studies show 70% of those with early-stage Alzheimer’s saw their memory improving 15 months later. The longer you wait, the worse the prognosis gets.
And, of course, our website. You can ask for more information and schedule to talk to our doctors here: Home—Lifespan Edge. If, for some reason, you want to talk to me or Dr. Roizen, then just leave a note with your phone number, and we will get back to you.
Tonight is Halloween, and we will get hordes of young children dressed as monsters asking for candy. A truly scary costume would be a Federal Reserve board member. With that, I will hit the send button. You have a great week and take care of yourself!
Your positive about our future analyst,
John Mauldin
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