Why Diversification, Duration, and Scarcity Matter Today

08 August 2024

Watch Time 2:54 MIN

David Schassler shares how innovation and financial instability are creating a new investing landscape and how to allocate to be successful.

Video Transcript

The New Investment Paradigm

So today we're going to talk about two topics. The first is why we think we're in a new investment paradigm. And then we're going to talk about how to invest to be successful in this new investment paradigm.

Powerful Forces at Work

We think the new investment paradigm is hallmarked by two very powerful forces. The first being innovation. The second being financial instability. Innovation is being driven from AI. We are the firm belief that AI will be equally as disruptive as the internet was in the 1990s. The internet changed everything. We think AI will do the same. That's going to create a lot of investment opportunities.

The second hallmark is financial instability. We're in a world of big deficit spending, huge deficits, huge interest expense, big money supply. All of that leads to financial instability.

Allocating to Find Success

Starting with stocks. AI is a huge theme. Nvidia is obviously the biggest example of that. Nvidia is defying the laws of financial gravity right now. If Nvidia continues to grow at the same rates growing at now, it'll be bigger than the S&P 500 in less than a few years.

We don't think that continues. Remember, if you go back to the internet days, Yahoo had a market cap bigger than Amazon, bigger than Apple, bigger than Google. The winners of tomorrow have not yet been crowned today. We think things are going to look a lot different in the years to come. And we want you to prepare for that through diversification, diversification across technology stocks.

The second is fixed income. Financial instability translates to interest rate risk to the upside from our position. If you can bias your portfolio towards shorter duration, you could pick up your yield and what you could do is hedge against the risk that interest rates rise because of more financial instability.

And lastly, real assets. This is our biggest call right now. We want you to diversify your asset allocation into real assets. We want to see 5% to 10% of your assets into a diversified basket of real assets. Which real assets are we talking about?

Gold is a direct hedge against financial instability. We think everybody's portfolio now should have exposure to gold bullion.

Commodities. Commodities provide exposure or protection from financial instability they do, but there's also another kicker in there. Commodities provide exposure to innovation as well. The new world is going to require more energy more infrastructure. You need more commodities to facilitate that so you get the benefits of protection for financial instability by owning an asset with scarcity, but you also get exposure to the future world and the future world again more energy, more infrastructure.

Today we talked about the new investment paradigm and then we spoke about how to allocate to be successful in this new paradigm. The dynamics in the market are changing and they're changing quickly. Now is the time to diversify.

For more information, go to VanEck.com. Sign up for our newsletter. Thank you so much.

IMPORTANT DISCLOSURE

Please note that VanEck may offer investments products that invest in the asset class(es) or industries included in this video.

This is not an offer to buy or sell, or a recommendation to buy or sell any of the securities, financial instruments or digital assets mentioned herein. The information presented does not involve the rendering of personalized investment, financial, legal, tax advice, or any call to action. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results, are for illustrative purposes only, are valid as of the date of this communication, and are subject to change without notice. Actual future performance of any assets or industries mentioned are unknown. Information provided by third party sources are believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. VanEck does not guarantee the accuracy of third party data. The information herein represents the opinion of the author(s), but not necessarily those of VanEck or its other employees.

Investments in commodities can be very volatile and direct investment in these markets can be very risky, especially for inexperienced investors.

There are inherent risks with equity investing. These risks include, but are not limited to stock market, manager, or investment style. Stock markets tend to move in cycles, with periods of rising prices and periods of falling prices.

Gold investments are subject to the risks associated with concentrating its assets in the gold industry, which can be significantly affected by international economic, monetary and political developments. Investments in gold may decline in value due to developments specific to the gold industry. Foreign gold security investments involve risks related to adverse political and economic developments unique to a country or a region, currency fluctuations or controls, and the possibility of arbitrary action by foreign governments, or political, economic or social instability. Gold investments are subject to risks associated with investments in U.S. and non-U.S. issuers, commodities and commodity-linked derivatives, commodities and commodity-linked derivatives tax, gold-mining industry, derivatives, emerging market securities, foreign currency transactions, foreign securities, other investment companies, management, market, non-diversification, operational, regulatory, small- and medium-capitalization companies and subsidiary risks.

All investing is subject to risk, including the possible loss of the money you invest. As with any investment strategy, there is no guarantee that investment objectives will be met and investors may lose money. Diversification does not ensure a profit or protect against a loss in a declining market. Past performance is no guarantee of future results.

No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of Van Eck Associates Corporation.

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