Instead of simply owning different stocks and bonds, a more robust strategy is to hold assets that perform differently under various economic conditions like high risk, instability, or inflation. This involves balancing high-volatility assets with stores of value like gold to protect against an unpredictable future.

In an economy where currency is being systematically devalued through money printing, holding cash is a losing strategy. The only way to preserve wealth is to own a diverse basket of 12-15 uncorrelated assets (e.g. stocks, commodities, real estate) that are subject to different economic pressures.

In high-inflation environments, stocks and bonds tend to move in the same direction, nullifying the diversification benefit of the classic 60/40 portfolio. This forces investors to seek non-correlated returns in real assets like infrastructure, energy, and commodities.

A stock with a negative beta moves opposite to the overall market. Investors intentionally use these assets, such as gold, as a hedge. When the broader market crashes, these investments are expected to rise in value, helping to offset losses elsewhere in a portfolio.

Owning multiple stocks or ETFs does not create a genuinely diversified portfolio. True diversification involves owning assets that react differently to various economic conditions like inflation, recession, and liquidity shifts. This means spreading capital across productive equities, real assets, commodities, hard money like gold, and one's own earning power.

A more robust diversification strategy involves spreading exposure across assets that behave differently under various macroeconomic environments like inflation, deflation, growth, and contraction. This provides better protection against uncertainty than simply mixing asset classes.

During the 1966-1982 stagflationary period, the S&P 500 performed poorly in real terms. However, historical data from Fama and French shows that U.S. mid-cap value stocks successfully preserved their purchasing power. This suggests that in a similar environment of high inflation, these stocks may offer a relative safe haven.

Profitable companies act as a hedge against currency debasement. They issue long-term debt at low fixed rates, effectively shorting the currency. They then invest the proceeds into productive assets or their own stock, which tend to outperform inflation, benefiting shareholders.

Despite its reputation, gold is not a reliable strategic inflation hedge, working only about 50% of the time. In contrast, U.S. equities have historically provided a 100% effective hedge against inflation over the long run, making them a superior asset class for preserving purchasing power in a diversified portfolio.