Editor's note: Will the year ahead bring an imminent recession... or an inflationary boom? According to our founder, Porter Stansberry, three simple rules can help you succeed in either outcome. In today's piece – adapted from The Big Secret on Wall Street, published by his firm Porter & Co. on September 19 – Porter explains how to prepare your portfolio now... before the next crisis comes.

Three Rules to Prepare for the Next Meltdown

By Porter Stansberry

Government deficits are soaring like never before...

As of mid-September, this year's budget deficit represented nearly 6% of U.S. gross domestic product ("GDP") – a level that's unprecedented in U.S. history, outside of wartime or a severe economic downturn.

In other words, the U.S. government is spending as if we're already in a crisis... before any crisis has even begun.

Meanwhile, the Federal Reserve is now aggressively cutting interest rates for the first time since the COVID-19 lockdowns... despite official inflation measures remaining well above the central bank's official 2% target.

I'm no longer sure whether we'll imminently experience a recession and stock market meltdown... or an inflationary boom and stock market melt-up, followed by a severe downturn.

As such, I believe investors should do their best to be prepared for either outcome.

That means continuing to own high-quality stocks and other assets that will benefit from a potential melt-up, while also beginning to prepare for the inevitable meltdown.

And today, I'm going to help you do just that... by sharing a handful of bear market "rules" that will help you survive – and, indeed, thrive – in the next crisis...

Bear Market Rule No. 1: You Must Hold Cash

Taking advantage of bear market bargains requires more than just the knowledge to buy when most investors are selling – to "be greedy when others are fearful," as legendary investor Warren Buffett has famously said...

You must also have the cash available to do so.

This should be fairly obvious. Unfortunately, most investors tend to remain fully invested until a crisis is already underway... and only begin to raise meaningful amounts of cash after stocks have entered a bear market. By then, it's too late.

This behavior is doubly harmful. It locks in big losses on the stocks you sell... And it leaves you with relatively little cash available to take advantage of bear market opportunities.

The key to avoiding this fate is to have cash available before trouble begins... when – like today – warning signs are mounting but most investors remain blissfully unaware. Despite my belief that an inflationary stock market melt-up is possible, I continue to suggest that most investors hold as much as 25% of their portfolios in cash today.

Bear Market Rule No. 2: 'Hedge' Your Cash With Hard Assets

I also recommend holding a small percentage of your cash in hard assets that do well during periods of inflation.

The reason is simple... As I mentioned above, the Fed and Treasury are already "goosing" the economy today. And the government's response to every severe recession or bear market since the 1990s has been to flood the financial system with even more monetary and fiscal stimulus that causes the value of the U.S. dollar to decline.

During the 2008 financial crisis, my favorite inflation hedge was gold bullion – plain, regular gold coins. Gold was – and still is – the only asset that has maintained its value for thousands of years. So I still believe every investor should own some gold today.

But now I also suggest holding bitcoin as well. This cryptocurrency shares several of the same monetary qualities with the precious metal – including scarcity, durability, and fungibility – earning it the nickname of "digital gold."

In fact, by some measures, bitcoin is arguably an even better store of value than gold.

That said, bitcoin has only existed for around 15 years... It simply can't compare with gold's centuries-long track record of reliably storing value through crises. For that reason, it makes sense to own a little of both.

Bear Market Rule No. 3: Be Prepared to Follow the Greats

Raising cash before a crisis is only part of the equation. You must also have the emotional discipline to put that cash to work.

I explained why this is so important in the April 2008 issue of Stansberry's Investment Advisory...

While most of your financial advisors will undoubtedly tell you to trim your exposure to stocks and "batten down the hatches" financially – you will get the opposite advice from me.

Do you think Warren Buffett, Sam Zell, Marty Whitman, Bill Gross, Jim Rogers, Jeremy Grantham, Steve Leuthold, Mark Mobius, or any other extraordinarily successful long-term investor trims his portfolio during bear markets? Absolutely not. That's when they put their cash reserves to work.

Great investments are made during bear markets. Great investors earn their reputations during bear markets. The fortune you hope to gain from the markets will be made by what you do during bear markets. It's easy to buy and hold during good times. It is much, much more difficult to put money to work in critical situations when you have to go against the crowd and your own fears.

While most investors understand this strategy in their heads, few have the fortitude to act while others are panicking. Once again, the key is preparation.

It's also a great idea to create a "shopping list" of high-quality stocks you'd like to own. Ideally, you'll have been following a business for years and will know it inside and out... So you'll have the confidence to buy when others don't.

And – as you'll discover if you become a lifelong connoisseur of great businesses – the trick to achieving outstanding long-term results lies in only buying at reasonable prices.

Regards,

Porter Stansberry

Editor's note: According to Porter, what comes next for the U.S. economy could be much worse than battles over taxes or tariffs... or even a market crash.

That's why he's stepping forward to show folks exactly how to prepare, starting immediately, using what has been called the "Holy Grail" of the investment world. And he's even sharing four stocks with the potential to protect and grow your money in the years ahead... Get the details here.

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