How are billionaires preparing for the next bear market?

Guest post byVisual CapitalistandSprott Physical Bullion Trust





No one likes to lose money, even if you have billions to spare.

It’s why the prospect of a bear market – a prolonged downturn which sees stock prices fall by at least 20% over two months or more – is something that keeps even the world’s most elite investors awake at night.

To hedge against this concern, the world’s billionaires use a variety of strategies and tactics to protect their wealth, including setting up their portfolios with specific asset allocations that can help soften any blow caused by an extended market downturn.


Protecting Wealth


Today’s animation highlights a strategy being used by billionaires ranging from Ray Dalio to John Tudor Jones II.

Because market sentiment can change so quickly in the market, these elite investors protect themselves by having diverse portfolios that include negative correlated assets.

What kind of asset classes can be used for this kind of purpose?

While options like real estate, commodities, and cash can contribute to a more diversified portfolio beyond traditional stocks and bonds, many experts say that gold is the undisputed king of negative correlated assets; meaning that the price of gold can even increase in price during the course of a bear market.


Here are some of the reasons billionaires turn towards an allocation in gold:

  • Gold has acted as a store of value for thousands of years

  • Gold can lower the volatility of a portfolio

  • Gold can act as a hedge against inflation in some scenarios

  • Gold is a traditional safe haven asset that investors flock to when the market goes astray


Billionaire Actions


In 2019, a new billionaire jumped onto the gold bandwagon – along with previous advocates such as Ray Dalio, David Einhorn, John Paulson, and John Tudor Jones II.

The newest entry to the club is Sam Zell, the pioneer behind real estate investment trusts (REITs). He bought gold for the first time in January 2019, citing that it is “a good hedge” and that “supply is shrinking” as new mine discoveries dries up.

With market volatility back in the fray, it’ll be interesting to see how many more of the world’s elite investors also jump on the bandwagon.

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