We've managed to avoid the great Mayan prediction of the end
of the world in 2012, along with countless doomsday
prognostications before it. But while we shrug off the continued
calls that some people still predict about the end of the world,
it's undeniable there are good reasons investors should have a
"doomsday portfolio" to protect them from catastrophic
I'm not talking about the end of times, though. In the event
of runaway asteroids or the second coming,
for your golden years
be the least of your worries.
But I'm also not talking about simply a global malaise in
economic growth or the gradual loss of
in the U.S. dollar, either.
I'm talking about a quick collapse of order -- a collapse of
faith in our institutions and a resulting widespread loss in
And if you think this could never happen, then think
Hurricane Katrina destroyed more than $60 billion in economic
value and led to massive looting and a surge in energy prices.
The once-in-a-century disaster was followed just seven years
later by Hurricane Sandy, which caused damage that may cost up to
Officials in Japan have found radioactive material in produce
as far as 200 miles from the Fukushima nuclear disaster.
The point is, large-scale disasters, man-made or natural, seem
to be getting stronger and more frequent.
Combine a few disasters with the collapse of a government or
financial systems abroad, and you've got the makings for hysteria
losses here at home. While
and other assets would eventually rebound, wouldn't it be
nice to know that you are protected on the
Peace of mind and reasonable returns
Devoting a portion of your portfolio to "disaster insurance"
types of assets is not as difficult as it may seem. And it
doesn't have to come at the expense of returns, either. Three key
points can help you build a doomsday portfolio that will provide
returns as well as peace of mind...
- Own hard assets that can be used to store value in the
event currencies cease to carry popular
with production and
regions or countries to diversify
- Own assets that provide enough current
to provide a reasonable return on your
in the event the sun comes out tomorrow.
With these three key traits in mind, here's a list of ideas
and the stocks that should help any portfolio survive a collapse
during bad times, but also perform well during the good
The ultimate storage of value when the government is
no longer able to back its
and investors get nervous about the future... is
gold. Gold is probably the biggest insurance-type bet in
the portfolio. Like insurance, it may suffer losses or
not add much unless the
comes down hard or if
jumps. You probably don't want a large portion of your
portfolio in gold, but if things get bad, you definitely
want some exposure. Consider any losses on gold as you
would an insurance policy: You wouldn't cancel your
homeowner's policy because you haven't had a fire in a
Gold can pay off on two doomsday scenarios: a jump
in inflation or a spike
in market fear. An investment in physical gold
Gold Shares (NYSE:
has easily beaten most other assets during the past
decade, but the
. While I think the shares could edge higher and would
surge in a crisis, I also want something that is going to
pay me to wait.
That's why I also like
Barrick Gold (NYSE:
. It's the world's largest gold miner, with 26 mines in
operation across five continents. This diversity in
production insulates the company from unrest in any one
part of the world. The
of almost 1.1% and is not expensive at just over 8
Revealed: An Inside Look at Ron Paul's
Oil exploration and production
Even with alternative forms of energy coming into
their own, the world still runs on oil. The United States
still relies on petroleum for 40% of its energy needs,
and that percentage is much higher in many other
countries. If confidence were to be lost in global
governments and currencies, then oil would be needed as a
store of value and for use in production.
, the nation's second largest oil company, is the first
to come to mind. The company has assets and sales all
over the world and a strong 3.3% dividend yield.
all my eggs in one basket though, so I also like
exchange-traded fund (
Energy Select SPDR (NYSE:
for its 1.7%
across 45 energy companies. The
carries an extremely low
of 0.18% and trades at a relatively cheap 13.6
times forward earnings of the companies held.
You can live for weeks without food and shelter, but
water becomes a necessity within just a few days. The
of Environmental Science & Technology estimates that
1 in 3 counties in the United States could face a high or
extreme risk of water shortages due to climate change by
the middle of the 21st century. Combine this trend of
scarcity with an unforeseen catastrophe that wipes out
some supply, and you've got hysteria on your hands.
American States Water (NYSE:
provides water services in 10 California counties,
including drought-prone Los Angeles. AWR just recently
increased its dividend by 14% and making it 59 years of
dividend increases. The price-to-earnings (
) ratio of 19 is significantly above the industry average
of 14 due to AWR's strong fundamentals and yield.
Aqua America (NYSE:
could diversify your water exposure through 12 other
states in the U.S. and across other water and wastewater
service providers. The company pays a sustainable 2.3%
yield and has been successful in pushing through large
rate increases to pay for infrastructure projects and
If you think tobacco is not a necessity, just ask
anyone who has tried to quit smoking. In the event of an
environmental or economic catastrophe, people may cut
back on most other products, but they will always buy
is the third-largest cigarette producer in the U.S.
and has been increasing its
steadily from 11.8% in 2009 to 14.1% in 2011. The
stock pays a huge 5.1% dividend yield and trades at just
13.1 times trailing
, well under the industry average of 18.6.
Philip Morris International (NYSE:
diversifies exposure to the industry with its
strong international presence and brands like Marlboro
and Virginia Slims. The shares are relatively expensive
at 16.7 times trailing earnings, but management has plans
to expand into the Chinese market, which could
significantly increase earnings.
The Most Hated Company on Earth is
Bringing Investors Big Profits
The "Doomsday" Portfolio
Risks to Consider:
The risk to buying any kind of insurance is that you never
need to use it. That is why I have tried to
selectinvestments that would perform well even if the
worst-case scenario fails to emerge.
Action to Take -->
Just as you would not spend your entire income protecting your
house with insurance, you would not devote your entire
to a "doomsday portfolio." However, allocating a small chunk --
maybe 5% to 10% -- of your
portfolio to these kinds of
is definitely a smart move.
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