How to Make a Fortune in the Coming Years…

Back on June 30th, I wrote about inflation, interest rates, taxes and gold in a piece titled “How to Invest During an Economic Crisis.”

If you haven’t read it, go do that now. I’ll wait.

Back? Okay, so it’s 2 months later and has anything changed my mind about what I said?

Nope.

In fact recent events have just reinforced my views.

I’m even more convinced that it’s only a matter of time until inflation rockets upward and tax increases follow. I just can’t see another way out of the situation we’re currently in. I guess a miracle could occur and economic output could rise dramatically, but I’m not really holding my breath on that one.

The U.S. government appears to be committed to spend, spend and then spend some more. With its $1.8 trillion dollar annual deficits (can you even wrap your mind around that number?), health care “reform,” continuing bailouts, and other borrow and spend policies, it doesn’t take a rocket scientist economist to see the writing on the wall.

If you borrow like there’s no tomorrow and print money faster than mosquitoes breed, you’re bound to pay the piper sooner or later.

Now I can guarantee you that there will be many people who get blindsided by this. All of a sudden they’ll be paying much more for much less, their tax bill will increase and they’ll scratch their heads and say, “when did this happen?”

You don’t have to be one of them.

Listen, sometime between the next 2 and 10 years the probability is that the money you have today will be worth significantly less. That means you do not want to have your investments in fixed income securities. If you’re being paid a fixed rate every year, inflation will chew you up and spit you out.

Imagine being able to borrow money today and pay it back years later with inflated dollars. That’s the side you want to be on, not the side that’s lending money today and being paid back with inflation-adjusted dollars.

However I’m certainly not recommending that you borrow huge amounts of money today. There are too many variables involved in that strategy to ensure you have a good chance of making money (variables such as your cash flow situation, your income in the years ahead and more).

No, there is an easier way to make money in such times.

So if you believe that inflation is coming, the smart thing to do is invest in things that rise by at least (or preferably more than) the rate of inflation. What are these things?

Well, historically gold and energy have done well in inflationary times. So has other natural resources.

If you want to hedge your portfolio against the threat of inflation, you should be purchasing gold and energy stocks right now – not 2 or 3 years from now. When the underlying asset rises, these stocks tend to rise too.

But what if you’re not sure how to evaluate stocks in these industries? What if you don’t know if these stocks are too expensive right now or not? What if you don’t know what combination of stocks to purchase in order to construct a strong portfolio?

If you’re not sure about these questions, then get the Pragmatic Investor book. It will explain what you need to know and give you a step-by-step system for selecting stocks with a built in margin of safety. It will also tell you exactly how to construct solid, efficiently diversified portfolios.

And here’s a secret just for reading my stuff: enter coupon code “aptusSub” (without the quotes) and you’ll receive an additional 50% off the already discounted price (but only until 11:59pm on September 4th – so don’t delay, do it now).

On the other hand, if you don’t want to order the book because you’re not interested in individual stocks, here’s a way to protect your portfolio from inflation without having to do too much thinking.

Purchase a handful of Exchange Traded Funds (ETFs). These combine the best characteristics of both mutual funds and individual stocks. They’re somewhat diversified, generally low cost and can be traded like stocks. Plus they come in a variety of flavors designed to suit your investing style.

There are tons of ETFs that invest in gold, energy and other natural resources. Do a bit of research and you’ll come up with a huge list. Then pick one in each of the 3 sectors and put between 10 and 15% of your portfolio in EACH sector ETF.

That will give you an inflation hedge of between 30 and 45% of your portfolio.

Plus you’ll be somewhat diversified within each actual ETF (since each holds a number of stocks) and you’ll be somewhat more diversified between the ETFs you hold (since they’ll be holding stocks in different industries).

And if you need any more proof that this is a strategy that has a high chance of succeeding, look no further than China, India and Brazil. These countries’ economies are actually expanding at a time when traditional first world economies are falling. And the expansion rate is dizzying, to say the least. China’s GDP grew at 6.1% in the first quarter of 2009. And it grew at 7.9% in the second quarter! But that’s not the end. China is expected to do even better in the coming years.

And what do you think a fast-growing economy needs? You guessed it. Energy and natural resources.

China alone, with its gigantic population, could put upward pressure on prices, but when you add India and Brazil (plus others who are developing huge middle-classes now that many of their citizens are pulling themselves out of poverty for the first time), you should be salivating at the potential profits available to those who act now.

Add what we talked about earlier, massive U.S. government spending, and the stage is being set up for a select few, who know what they’re doing, to grow their investments at an astounding rate over the next 10 years.

September is just around the corner, and with it comes a new year of investing opportunities. Do a bit of research and your own due diligence. It could be the difference between retiring wealthy and just getting by.

And of course if you’re at all interested in the stock market, get the Pragmatic Investor book. Until September 4th at 11:59pm you’ll receive a 50% discount just by entering the special discount coupon code of “aptusSub” (without the quotes).