While it always tempts fate to say that “this time, things are different”, I think that today things really are different, and in ways that could have long-lasting effects on the economy and markets.

The bad news for investors it that over the longer term, I think the market will likely produce more losers than winners. But the better news is that the winners – the companies poised to benefit from the dramatic changes facing our world – will likely be huge winners.

The urgent need for the world to transition to a planet that runs on sustainable energies will require enormous quantities of commodities, exceptional technologies, and cooperation among major countries if we have a prayer of rising to the greatest challenge mankind has ever faced. It’s a potentially $100 trillion endeavor, and the companies that lead the way will be raking it in.

Bigger Volatility Ahead

At the same time, however, the market will experience major setbacks along the way. The war in the Ukraine is a vivid example of one kind of pitfall we could see. Overall, we expect big corrections and even bear markets to become more frequent.

We’ve been getting a taste of that. Between the beginning of 2022 and early July, the market as measured by the S&P 500 dropped by about 20%, while the tech-heavy NASDAQ dropped about 26%. I think it’s a sign of things to come and makes it clear that it’s critical to have investments that will protect you when the going gets tough. It also means you will need to increase your risk tolerance so that you’ll be positioned to reap the benefits when the stocks leveraged to our dramatically changing world are soaring.

The Fed has finally acknowledged that inflation is rampant and it’s tightening. The problem is that we may already be in a recession (defined as at least two consecutive quarterly GDP declines). If the economy contracts significantly, the Fed may have no other choice but to ease again. Thus, we could see a repeat of the pattern that we’ve seen in the last 15 years or so. But even if economic downturn pushes inflation down, monetary easing again fosters inflation. Rinse and repeat.

All this volatility is highly stressful, and we can understand it if you’re thinking you just want to step aside, that even the potential for great gains isn’t worth all the stress the extreme volatility brings.

But that won’t work, because stocks are the only game in town. With inflation currently getting very close to double digits, cash and bonds are sure losers. By way of hypothetical example, if your wealth is held in cash, five years of low-double-digit inflation – which in the context of growing resource scarcities would be possible – would reduce your wealth by 45%. Over a decade, you’d lose nearly 70%.

Using Hedges to Protect Your Portfolio

What’s the answer for investors? I think part of the solution is to devote a portion of your portfolio to a core selection of investments that are specifically designed to offset market volatility.

What you put in this core is your choice. But whatever stocks or funds you put in there, they should have proven defensive, and even contrarian, properties. They should decline less or even gain as the overall stock market falls.

Traditionally, popular defensive picks include utilities and consumer staples, the types of companies whose revenue and earnings are not very economically sensitive. No matter the state of the economy, the demand for these companies’ services are relatively consistent so they experience steady revenue and cash flow trends.

However, during the current environment, with inflation running high, I strongly suggest considering gold and gold miners. The Midas Metal has been a store of value throughout the history of humankind, and historically has outperformed during inflationary periods. And in market downturns, they tend to be viewed as alternatives to stocks. As noted earlier, I expect inflation to be a persistent issue, making gold an asset to hold for the long term.

In fact, I’ve just pinpointed a junior gold mining stock that’s poised for exponential gains. If you act now, this small-cap miner could hand you 20 times your money. It’s an unbeatable combination: outsized growth plus inflation protection. For details on this under-the-radar gold stock, click here.