Billionaire investor who predicted the last two market crashes warns of impending Black Swan bubble burst in the equities market

Why is Mark Spitznagel predicting doom and gloom for the stock market?

Spitznagel recently told Business Insider that he believes the “worst market crash since 1929” is coming.

As the Chief Investment Officer of Universa Investments, Spitznagel’s biggest concern is how prominent debt is in all financial decisions — from day-to-day consumer choices to federal initiatives.

“Credit bubbles end. They pop. There's no way to stop them from popping,” he said, adding that the Fed has brought the economy to a place “where there’s no turning back.”

Spitznagel’s advice: Don’t chase returns. Instead, he suggests investors build a portfolio that can withstand market crashes and dips. To help, here are some tips on building a recession-proof portfolio.

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How to prepare your portfolio in case of a market crash or recession

The first step to preparing your portfolio is to consider how diversified your holdings are in terms of assets, sectors, geographic regions and market cycles.

For instance, most investors are advised against holding an all-equity portfolio. Instead, a balanced portfolio is preferred as it allows investors to capitalize on market appreciation, but hold steady with bonds and alternative investments should economic conditions weaken.

While stocks and bonds are the standard assets to hold in a balanced portfolio, other alternative investments are now growing in popularity. To help you choose, here’s a list of the three most popular alternative investments that can help your investment portfolio stand strong against any market storm.

Gold as a hedge against a market crash

Gold has long been considered a safe haven asset. This precious metal is an investor favourite, particularly when there is market uncertainty.

Despite persistent inflation throughout 2023 and 2024, gold prices continued to grow, reaching new heights in 2024 with a price that hovered around CDN$3,575 per ounce.

While Canadian investors can purchase gold bars, coins, or bullion through Silver Gold Bull, most choose to invest in gold stocks or an ETF that tracks the price of gold. The best way to do this is to open a discount brokerage account. Good options include:

• CIBC Investor's Edge: Get up to $100 in commission-free options until October 31, 2024
• Questrade: Get a $50 trade commission rebate
• Wealthsimple Trade: Get $25 and commission free trades when you open and transfer $150 or more into the trading account

Real estate as a hedge against a market crash

If you have enough cash, you could simply buy an investment property in one of Canada’s sought-after rental markets. But it’ll cost you.

Another option is to invest in real estate investment trusts (REITs). A REIT allows you to invest in a company that owns, operates and earns a profit off of real property. By investing in REITs, you get exposure to real estate earnings and appreciation without having to manage or finance the properties, personally.

For investors who want a hedge against equity market downturns, consider REITs that focus on commercial properties, such as retail malls, storage facilities and data warehouses. Like gold ETFs, a good way to purchase and sell REITs is to open an account on an online trading app.

There are also several real estate investment crowdfunding platforms available in Canada such as NexusCrowd, addy Invest, Equivesto, BuyProperly and Willow.

Art as a hedge against a market crash

If you’re looking to diversify your portfolio outside of real estate, consider an alternative asset like fine art. Masterworks is making this inflation-hedging asset — which has historically been reserved for the ultra wealthy — accessible through their platform.

With Masterworks, you can purchase shares of iconic works of art and benefit from their diversifying ability, without needing to shell out millions of dollars at an auction.

It can also pay to keep some cash on hand. Cash reserves in your portfolio could be the difference between you holding fast through market turmoil or you having to sell your investments at a loss.

Bottom line

If Spitznagel's predictions of a market crash come true, Canadians who are overly concentrated in equities may face significant losses. To protect your investments, consider adding alternative assets to your portfolio, including real estate, commodities and international exposure in markets less correlated with North American economies, as they could provide a safety net, as well as gold and fine art investments.

For Canadians looking to build a crash-proof portfolio, focusing on diversification across asset classes is critical. Additionally, engaging with a qualified financial adviser who can help build a portfolio that aligns with long-term financial goals while preparing for potential market volatility, can go a long way to creating a balanced, market-proof portfolio, as well as providingpeace of mind.

Sources

1. BNN Bloomberg: US$6.4 trillion stock wipeout has traders fearing ‘great unwind’ is just starting (Aug 5, 2024)