Is Your Portfolio Built To Prosper From Adversity?

TruePoint Capital

Different people respond differently to adversity. Some shrink and retreat in the face of hard times, while others resist adversity with a small group, sometimes growing even stronger from adversity.

How a person deals with adversity is typically a function of many factors, including upbringing, experiences, mental resilience, and preparation.

As a country, we may face significant financial adversity in the near future. Some may already be feeling the pinch of inflation, and with the economy in a recession, financial pain could spread to others like rapid fire before we know it. It all started with COVID, then printed money in the form of stimulus checks, and now inflation from all that free money.

The Fed’s answer to inflation is to slow the economy. It plans to raise interest rates, which it has already done four times this year. The last two rate hikes of 0.75% were the highest one-time increases in 28 years. By raising interest rates, the plan is to hike the cost of borrowing, which should slow consumer and business spending as credit becomes more expensive. Of course, a slowdown in spending means a slowdown in the economy and, with history as our guide, is not good news for the stock market or jobs.

When discussing the different levels of preparedness for financial adversity of different individuals, the words that come to mind are vulnerable and resilient. Those who are vulnerable – you could even say fragile – are not prepared for adversity and have a long, tough road ahead. They may lose their jobs, homes, and even families as the stresses of financial hardship bear down. Those who are resilient will survive the coming storm. They’re prepared to resist and will likely rebound from most forms of financial adversity.

We’ve talked about vulnerable and resilient individuals in the face of adversity, but there’s yet another group that not only resists adversity but also prospers from it. These are the antifragile – those who become stronger when under attack.

In his book, Antifragile: Things That Gain From Disorder, author Nassim Taleb discusses people and systems that become stronger, even prosper, in the face of calamity. He details what sets the vulnerable, the resilient, and the antifragile apart.

Fragile individuals and systems are exposed and vulnerable to volatility, robust things can resist volatility, and antifragile systems benefit from volatility.

The antifragile, the opposite of fragile, are individuals or systems which would be unharmed even in the worst possible situations and unprecedented scenarios. Antifragility refers to individuals or systems with more to gain than lose under adverse conditions.

Here are some of the key takeaways from Taleb’s book:

  • Antifragile individuals and systems benefit from shocks. Those who are presently fragile do not have to remain fragile. Change is possible.
  • Humans can become antifragile in traumatic situations when they undergo post-traumatic growth and become better and “more” efficient.
  • Antifragility indicates the ability to bounce back from failures and grow out of frustrations and hardships.
  • Nature and human bodies are examples of antifragile systems.
  • Building antifragility is a necessity today, with uncertainties abounding at every stage.
  • The fragile will perish under pressure when there is a black swan event. But, the antifragile, capable of bearing stress and shocks, will thrive.

Time for a self-assessment:

  • How prepared are you for the next economic disaster?
  • How prepared are your finances and your portfolio?
  • Would you describe your situation as fragile, robust, or antifragile?
  • Can you imagine being in a position to prosper during the next downturn? If so, how?

If you characterize yourself and your financial situation as vulnerable, exposed, or fragile, the good news is there’s still time to change. There’s time to prepare to become antifragile.

But, you might be asking how you go about becoming antifragile. The answer lies in those who have already achieved this level – those who have built antifragile wealth and portfolios. These savvy investors have fortified their finances and portfolios to survive and thrive during disasters. How?

  • Invest in assets that will always be in demand with pricing that can move with inflation without losing demand.
  • Be patient and invest for the long-term in private alternative assets insulated from Wall Street volatility.
  • Take the emotion out of investing.
  • Rely on numbers, analytics, and underlying economic fundamentals when making investment decisions.
  • Invest in assets with a track record of performance. Income-producing private companies and commercial real estate have solid history to base investment decisions on.
  • Pursue assets that generate a passive income that thrives in a downturn to counter any loss of income from job loss.

It’s time for everyone to fortify their financial defenses. Don’t be left vulnerable to financial disasters. Don’t just plan to survive but plan to thrive during the next downturn.

With the right assets and strategies, it is highly possible to become antifragile with the ability to prosper in the face of diversity.