How I’d invest a £20,000 Stocks and Shares ISA to survive any market environment

Financial markets have fallen substantially so far in 2022, so I’m creating a portfolio for my Stocks and Shares ISA that will survive any environment

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2022 has been a rough year so far. Bonds and equities are falling in tandem, meaning a traditional 60/40 equity-bond portfolio is off to a bad start. Therefore, I have been investigating new ways to structure my Stocks and Shares ISA to survive any market environment, and I think I may have found an answer.

Inflation

Inflation usually arrives as we come out of an economic downturn. Demand picks up as consumers become more confident about their financial position. This causes prices to rise as people buy homes and spend on goods and services. This environment usually benefits commodities, which have historically performed well in times of heightened inflation or ‘reflation’, such as when the news of a vaccine broke in 2020.

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For this environment, I would add 10% to a diversified trust such as BlackRock World Mining Trust, 5% to a commodity trading adviser like Mulvaney Global Markets Fund, and 5% to individual miners.

Dis-inflationary boom

In the second environment, inflation is slowing but demand is still strong. The consumer is spending and banks are lending, so money is flowing through the system smoothly. People are optimistic about the future. The end of 2020 would be a good example of this.

For this environment, I want to own equities. I would allocate 15% to a simple S&P 500 index fund. With the other 5%, I would add individual stocks at attractive valuations, in the hope of outperforming the index – often called a ‘core and satellite’ strategy.

I have decided to add a fifth segment into my equal weight portfolio called ‘momentum’. Some 86% of the time, markets are rising, so I believe having a larger weighting toward stocks will benefit a long-term investor like myself. This strategy buys the winners and hopes they continue to win. Such strategies today are dominated by companies like Amazon that have been proven to win, no matter what.

For this environment, I would add 20% to a low-cost ETF such as iShares World Momentum Factor UCITS for my ISA.

Stagflation

Arguably the worst environment is stagflation. This is when growth is slowing/low, and unemployment and inflation are high. This is difficult because central banks are stuck between raising rates to kill inflation and taming policy to reduce unemployment and improve growth.

In this environment, precious metals shine. I would add 12% to WisdomTree Physical Gold, 5% to WisdomTree Physical Silver for my ISA, and add 3% to Bitcoin. I hope this protects my money from currency devaluation over the long run.

Deflation

The final environment comes as times get tough. People spend less, banks aren’t willing to lend, and the economy slows. A recession is imminent/present, and growth is nowhere to be seen. 2008 is a good example.

In this environment, I want to invest in secure assets. I would allocate 5% to a capital preservation trust such as Ruffer Investment Co, which can actively manage my money. With the final 15%, I would allocate it across various duration bond ETFs, such as iShares TIPS ETF, iShares Treasury Bond 7-10yr ETF, and iShares 20yr+ Treasury Bond ETF (5% in each).

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Peter McMullan owns shares in Ruffer Investment Co, WisdomTree Physical Silver, and Bitcoin. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

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