What is a 100-year portfolio? (A simplified perspective of a recession-proof portfolio)

I recently stumbled upon this video produced by Steen Jakobsen from Saxo, where he fully explained the rationale and components of a 100-year portfolio. This portfolio is mostly used to reduce the impacts of inflation, which happens to be a huge buzzword in recent weeks, which has caused stock prices to crumble.

The graph below shows the disadvantage of owning purely stocks in your portfolio, which is that you are not benefiting from the other instruments of investments during rates of high inflation

Diversify, diversify, diversify

Usually the first thing people think of about diversification is buying stocks of different companies (ie. S&P500) so that in event one company from that particular sector is performing badly, you are still keeping the gains received from other stocks. But a much more diversified diversification would be to explore things like commodities, and volatility. Diversification works if things are negatively correlated to each other ie. one rises when the other falls. And the portfolio below does just that.

Introducing the 100-year portfolio

Source: Saxo Group

Equity - 35%

Most people when they start their investing journey, would be with either through stocks or fixed income, and equity are stocks of companies that people buy. Historically they have given higher returns although, with higher risks. So the highest proportion is accorded to equities but at a lower percentage compared to other investment portfolios. You can read a lot of content related to equities depending on your risk appetite on Seedly so I won't be talking a lot about it.

Real Estate - 20%

Everybody from our parents time will know that Real Estate is the best invest to have as it's performance is tied to inflation in a way and no matter what kind of virus is roaming earth during apocalyptic times you will still get some money from it, hence making it a good stable investment vehicle. Don't worry if you do not have enough money to buy a house for yourself yet because REITs gives you the opportunity to become a landlord and collect rent (Cues lepak towkay)

Commodities - 20%

Commoditites are also tied to inflation, these are your oil, wheat, corn, aluminum, live cattle, and gold which are commonly traded on the exchange. Commodities tend to bear a low to negative correlation to traditional asset classes like stocks and bonds. Hence it is doing quite well during this period. Instead of keeping barrels of oil or chunks of gold bar in your house, you can opt for commodities based ETFs, or join Hugo which recently had a SEEDLY TV (https://seedly.sg/posts/seedlytv-is-gold-really-a-good-investment-hi-everyone-please-ask-the-questions-you-d-like-our-panellists-to-answer-during-the-live-show-under-this-discussion-thread-here).

Fixed income(+inflation-linked) - 13%

These are things like bonds or T-bills, which could be issued by the government. But my favourite as recommended by Steen Jakobsen is TIPS(Treasury inflation-protected securities), which is a Treasury bond that is "indexed to an inflationary gauge to protect investors from the decline in the purchasing power of their money." This means that the principal value of TIPS rises as inflation rises while the interest payment varies with the adjusted principal value of the bond. You can read about my in depth explanation on TIPS here (https://seedly.sg/opinions/is-there-a-bond-that-grows-with-inflation-an-introduction-to-tips)

Crytocurrency - 7%

If there was a buzzword of the year in the financial world, I bet crypto would be number 1 on the list this year. It is very prone to big upswings as well as downswings. The future of crypto currencies is never certain as governments around the world are slowly coming to terms that it is not the tulips of the 17th century. With many companies and fund managers starting to invest in it, it is slowly gaining some legitimacy and value in our world today. Because of it's volatility though only 7% is allocated to it. There are many ways you can take part in cryptocurrency investing but check out my master and fellow student ambassador Yun Heng on how to do it (https://seedly.sg/profile/lin-yun-heng)

Volatility (Insurance on your portfolio) - 5%

The VIX is considered a reflection of investor sentiment and has in the past been a leading indicator of a dip in the S&P 500. People usually make a net loss on this investment but, you don't buy a fire insurance so that you can earn from it burning down right? Volatility helps your portfolio to hedge against any diasasterous drop in market (ie in Febuary 2020) Where the ProShares VIX Mid-Term Futures ETF (VIXM) shot up 137%

Performance of the 100-year portfolio in hindsight

In hindsight based on past performance, this portfolio (as the name suggests) took advantage of various situations over a 100 year period and the graphs below shows how it fared against a pure real estate, pure commodity, pure equities portfolio.

100-year portfolio taking advantage of all periods

Commodities stagnant from 1964-2007

Real Estate facing slow growth, equities dropping between 1929-1945.

*This article is not meant to be investment advice and please do your due diligence.