What Is the Best Way for Investors to Prepare for War?

Manage risk by boosting your exposure to gold by investing in Osisko Gold Royalties Ltd. (TSX:OR)(NYSE:OR).

| More on:
think, plan, and act to work towards your financial goals

Tensions between the North Korean regime of Kim Jong-un and President Trump’s administration have hit an all-time high; the North Korean government is threatening to launch missiles at the U.S. Pacific territory of Guam. Combined with Trump’s heated response, in which he threatened the increasingly isolated dictatorship with “fire and fury,” this has lifted the likelihood of armed conflict breaking out on the Korean peninsula.

Such a conflict would be devastating for all participants and cause a significant loss of life among combatants and civilians alike. The stance taken by Russia and China, which both see North Korea as a means of offsetting U.S. power and influence in the region, is not helping to calm matters.

Now what?

While outright war is unlikely, particularly with Kim Jong-un recently delaying a decision to fire mid-range missiles to land near Guam, it is clear that tensions will continue for some time. That should give investors pause for thought as to how to best protect their portfolios from this geopolitical risk and the potential for conflict to erupt in North Asia.

This is especially the case because in recent months, U.S. stocks keep hitting record highs, spurred on by better-than-expected corporate earnings and predictions of stronger economic growth.

Any conflict, particularly one involving a U.S. preemptive strike on North Korea, would disrupt the economy and have at least a sharp short-term impact on financial markets. When coupled with such lofty valuations, it means that a pullback among stocks is likely.

However, this should not deter investors from their long-term investment goals. The one thing that is clearly observable from equity markets over the long term is that they trend upward. This, according to famed investor Warren Buffett, occurs because of growing productivity and innovation, which allows the economy to keep expanding.

While trying to time the market usually eventuates in losses, it is prudent for investors to bulk up their cash holdings. This will leave them capable of making opportunistic buys when equities fall because of any further spike in geopolitical tensions.

Another conspicuous means of weather-proofing an investment portfolio against growing risk and uncertainty is to invest in gold. Famed hedge fund manager Ray Dalio recently recommend the lustrous yellow metal because of rising North Korea risk, stating that exposure should represent roughly 10% of the portfolio. For many investors, any investment in gold equates to buying bullion or investing in a gold ETF — the largest being the SPDR Gold Trust (NYSE:GLD).

Nevertheless, it is the gold miners that offer a superior means of investing in gold because of their leveraged exposure to the yellow metal. That means that as the price of gold rises, their stock prices increase at a greater rate than either bullion or an ETF.

One of the best means of gaining this type of exposure with significantly less risk than a miner is by investing in precious metals streamer Osisko Gold Royalties Ltd. (TSX:OR)(NYSE:OR). For the year to date, it is up by 29% compared to 11% for bullion and 10% for the SPDR Gold Trust. During July 2017, it completed a game-changing $653 million acquisition of 74 streaming and royalty agreements from Orion Mining Finance, which, over time, will give earnings a healthy bump.

Osisko Gold Royalties also reported some impressive second-quarter results, including a 12% year-over-year increase in gold production to record 10,863 ounces. Along with completing the Orion deal, that allowed it to reward investors with a massive 25% dividend hike; the dividend now yields 1.2%.

So what?

While the likelihood of outright conflict or nuclear war is indeed slim, tensions will continue to fester on the Korean Peninsula for some time. This will bolster the price of gold, making now an opportune time to invest in Osisko Gold Royalties to obtain levered exposure to the precious metal with far less risk than gold miners.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Matt Smith has no position in any stocks mentioned.

More on Metals and Mining Stocks

Concept of multiple streams of income
Stocks for Beginners

Lock Up This 9.2% Dividend Yield From a Top Royalty Stock

Royalty stocks have a strong advantage when it comes to creating passive income for investors. But this one has the…

Read more »

Safety helmets and gloves hang from a rack on a mining site.
Metals and Mining Stocks

Is First Quantum Minerals Stock a Good Buy Right Now?

First Quantum is a TSX stock that trades 61% below all-time highs. However, the mining stock still trades at a…

Read more »

nugget gold
Metals and Mining Stocks

The Best Gold Stock to Invest $1,000 in Right Now

Here are two of the best Canadian gold stocks that can yield some eye-popping returns in the long run.

Read more »

nugget gold
Stocks for Beginners

The Ultimate Mining Stock to Buy With $1,000 Right Now

This mining stock just saw a drop, but don't let that keep you from diving in. This miner is due…

Read more »

A plant grows from coins.
Metals and Mining Stocks

Canadian Mining Stocks: Buy, Sell, or Hold?

Explore 2025’s top Canadian mining stocks – gold, uranium, and base metals offer big potential in a dynamic, commodity-driven market.

Read more »

farmer holds box of leafy greens
Metals and Mining Stocks

3 Reasons to Buy Nutrien Stock Like There’s No Tomorrow

Nutrien stock has lost 34% of its value just this year alone and looks incredibly cheap today. Yet, secular trends…

Read more »

Canada national flag waving in wind on clear day
Tech Stocks

Trump Trade: Canadian Stocks to Watch

With Trump returning to the presidency, there are some sectors that could boom in Canada, and others to watch. But…

Read more »

Super sized rock trucks take a load of platinum rich rock into the crusher.
Metals and Mining Stocks

Invest $7,000 in This Dividend Stock for $672 in Passive Income

High yield can be an essential requirement when you need to start even a modestly sized passive income with a…

Read more »