Inflation-Dividend Mini-Portfolio

One of the many dilemmas facing investors lately is the prospect of little to no yield on cash.  I just got my 1099 for tax time from TreasuryDirect and realized that the four week Treasury Bills I have invested in for most of the past 12 months have been yielding 0.07% and have recently started to dip further.  While that's better than what the bank is paying, I'm looking to move that money into a higher-yielding but still relatively safe product - the Vanguard Short Term Inflation-Protected Securities Index Fund (VTIP) where the yield is 1.19% and you are protected from inflation.  I also have about 6% of my portfolio allocated to Bitcoin as I said I was planning to do in an earlier post and I also have another 4% in precious metals and other alternative assets.  I continue to maintain broad diversification across a wide range of assets, which seems to be the best way to approach these tumultuous times.  I was watching an interview recently with Ray Dalio, the legendary macro investor, and that's exactly his advice for the average investor.  

Here's my current portfolio allocation after the Bitcoin move:

• Cash / Equivalents - 16.6%

• US Stocks - 22.9%

• Private Equity - 10.6%

• International Stocks - 5.9%

• Bonds - 16.8%

• Real Estate - 16.8%

• Bitcoin - 6.1%

• Precious Metals, Other - 4.3% 

Low yields on most cash-equivalent instruments (with the exception of TIPS) will not keep up with inflation, which seems set to increase with the unprecedented monetary and fiscal stimulus that has become a global phenomenon in the wake of the COVID pandemic as I have discussed previously.  A diversified portfolio should include some exposure to stocks and I wanted to find some stocks that are still relatively fairly valued, large capitalization, pay a good dividend yield and have good commodity upside in the event inflation really starts to spike.  After screening several stocks, I came up with the list below that I call the Inflation-Dividend Mini-Portfolio.  This portfolio gives you an average yield of 3.85% if equally weighted, which is significantly better than even the long end of the Treasury curve and the average price earnings ratio is 16.74 which is well below the average of the S&P 500 of 39.57.  

This portfolio gives exposure to gold and copper (Barrick Gold), basic materials (Rio Tinto), oil (Chevron) and industrial manufacturing (3M).  All of these areas look to grow significantly as the economy recovers, will benefit from the "value rotation" and could really take off if there is meaningful inflation in the coming years, all while paying a nice dividend yield.  The table below summarizes the market cap, recent price, price earnings ratio and dividend yield as well as a brief summary of the business.

Before investing, make sure you do your own research, consider what others have to say and make your own decisions.  Also make sure to look at your overall portfolio diversification regularly.  

I hope you find this post useful as you chart your personal financial course and Build a Financial Fortress in 2021.  To see all my books on investing and leadership, click here. 

Stay safe, healthy and positive.