A year ago, I publicly recommended that investors hedge bets against stocks in fear that Trump tariffs would start devastating trade wars. The Supreme Court temporarily saved us, but now we face both tariffs and “forever war” with Iran or desperate peace which sacrifices Freedom of Navigation through many Straits.
And who knows if the divided Democrats will win back Congress or whether a divided government will restore affordability? With rampant fiscal instability leading to higher interest rates, re-consider hedging strategies that may keep near-stock-market returns but with varied risks likely to stabilize portfolios.
Running with AI Stocks?
It is hard to argue against returns averaging 17.5% in the S&P Growth index over the past 10 years, but these stocks may now be overpriced gambles on future earnings. Companies like Amazon and Microsoft have led AI rallies with hope that NIMBY governments will not block domestic AI infrastructure. I would count on growth stock rallies more when government sobers up and interest drops to finance expansion.
Value Stocks
Accountants like value stocks because book assets prove bargains from stock prices in fundamental analysis. Historically value stocks with low P/E values and dividends have outperformed growth stocks long term, especially in downturns. Dimensional fund reports: “Since 1927, value stocks outperformed growth stocks by 4.4% annually in the U.S.” Seaglobalfx.com reports their comeback as of late June: “the Vanguard Value ETF was up 14.4% year to date while the Vanguard Growth ETF had returned just 1.8%….”
International Stocks
Developed country stocks in Europe and Asia trend higher when peace looks likely but fall with missiles in Straits. Backtest reports: “In the last 39 years, the EURO STOXX 50 index (in EUR) had a compound annual growth rate of 7.83%….” So American stocks beat International Stocks in most of the post-2008 years. But America’s fiscal weakness reverses once-favorable capital flows: “In fact,” writes Forbes, “the year-to-date move in currencies provided 9.3 percentage points of the 11.9 percentage points of outperformance of the MSCI ACWI Ex-US over the S&P 500.”
Emerging Market stocks rallied in 2026 to outperform American stocks; Forbes says, “local and hard currency bond indexes are on track for double-digit returns, and equities advanced more than 30% in 2025.” The dollar declined and foreign currencies strengthened as these countries reduced deficits. Forbes’ bullish article continues: “The traditional macro vulnerabilities — where emerging markets were assumed to be fiscally fragile and structurally risky — has begun to reverse.” Shame on us!
Real Estate Investment Trusts
REITs let investors bet on realty markets without the hassles and lack of diversification of landlording. REITs must distribute 90% of income as dividends and they buy hotels, skyscrapers, warehouses or even private home mortgages. The FTSE NAREIT equity Index shows: “As of March 2026, the three-year total return on this index was 21.9% and the five-year total return was 21.4%.”
Commodities Investing
Macrotrends reports global commodities prices rising from a low of 88 in 2016 to today’s post-Covid high of 208. Over the past 30 years, Silver averaged 8.05% with Gold, Palladium and Brent Oil following in the 7% range. Closed Straits affect commodities like aluminum, copper, rare metals and precious metals mined with energy. The World Bank states: “Overall commodity prices are forecast to rise 16% in 2026, driven by soaring energy and fertilizer prices and record-high prices for several key metals.”
High Yield Bonds and Other Hedges
The US High Yield Index shows rates of 7.16% on July 30, 2026. These bonds have the security of first payoff but the higher rewards accruing to those who invest in baskets of troubled companies. Business risk varies from market risk.
Big tech does seem overvalued, but I dare venture predictions without guarantees and do not consider this advice for individual portfolios or market timing. Bank CDs still leave investors treading inflationary waters and Crypto advances — without inherent value — now are vulnerable to AI overproduction and Trump’s defeat. Fees are high and contracts confusing on life insurance and annuities.
My boldest hedge — buying derivatives to profit from fiscally irresponsible market failures — was a losing strategy this year, but who anticipates future tragedies? You can also invest in yourself and your neighbors with small businesses and rentals. Hedge your bets!
Robert Arne, EA, CFP, MS, of Carpe Diem Financial Life Planning, gives holistic financial and tax advice as his client’s fee-only fiduciary. This Mortgage Loan Originator (NMLS #2565162) serves mostly Santa Cruz Mountain dwellers. These articles must not be read as personal financial, mortgage, tax or investment advice; consult appropriate professionals. Learn more at www.carpediem.financial.
