Investing in The Changing World Order

Last week, I wrote a pessimistic post about the future – Are You Prepared for Cold War 2? I spent so much time talking about how things are worsening that I didn’t have time to talk about the investing part of it. Today, I’ll share how we can prosper in the changing world order. Fortunately, I am a little bit more optimistic after doing more research.

The world order is changing, but nobody knows how long this process will take. It could take 5 years or it might take 50 years. The United States might be able to hold on to the top dog position for longer than anyone thought possible. We are still the biggest economy in the world (for now) and we have democracy on our side (for now). We also have many allies around the world who believe in freedom and equality. Even if the world order is remade, we can still come out relatively prosperous. Globalization might be in decline, but America (North and South) has the resources to flourish regionally. If we get it right, the US could continue to prosper even in a less globalized world. That’s a tall order, though. The US has a pretty horrible track record of how we “cooperate” with our neighbors to the south.

Changing World Order

Here is a quick recap of the problems the world is facing.

  • The US is in decline. The US was a hegemony for many years, but China is challenging that. We also have a lot of internal unrest due to many factors such as inequality, race, fiscal irresponsibility, healthcare, and ideology.
  • Covid caused a lot of problems and it is still disrupting the global supply chain.
  • The war in Ukraine is causing further disruptions and the world is facing a shortage of energy, food, and fertilizer this year. The price of energy and food is soaring everywhere. Some countries are already facing unrest due to food insecurity and big inflation. Perhaps this supply problem will persist for many years, who knows?
  • China is the world’s fastest-growing economy and it drives the world’s economic growth rate. However, it is facing a lot of problems. Their housing market bubble is bursting. The zero Covid policy is causing more disruption in the supply chain. 373 million people in 45 cities across China are in various stages of lockdown. Their population is in decline and they dislike immigration. Their economy is slowing down. How long can it keep growing? Etc…
  • Globalization is in decline. Companies will have to adjust and stock prices probably will suffer.
  • Just my speculation – Xi Jinping has a similar agenda as Putin. There is a good chance he will invade Taiwan someday. This will cause even more problems for the world economy.

I found a fun presentation by Ray Dalio about the changing world order. Check it out.

Personally, I think he is somewhat right. There will be a struggle to change the world order, but I’m not convinced that China will become the next big enchilada. They have a lot of problems to overcome. BTW, the section on the world’s reserve currency is really good. Everyone should understand how the dollar helped the US become a superpower.

Investing in the changing world order

Ok, let’s see how we can prosper over the next 30 years. Inflation will be high in 2022 and it won’t come down anytime soon. There are too many problems in the world right now.

Cash flow is king

The first thing we all need to do is to make sure our house is in order. Your cash flow needs to be positive. That means your income needs to be higher than your expenses. That way, you can save and invest. That’s the secret to wealth.

If your annual cash flow is consistently negative, then you’ll never achieve financial independence. This is especially bad when inflation is high. You’ll have to borrow money to just survive and you’ll pay a lot of interest.

Cash is trash

Cash flow is good, but cash is trash* in a high inflationary environment. When inflation is 7%, your cash will be worth 7% less next year. Your buying power will decrease if you keep your money under the mattress. We need to invest that money.

*A catchy quote from Ray Dalio.  

Bonds might be okay

Traditionally, investors take money out of stocks and buy bonds when there are a lot of uncertainties. But, long-term bonds don’t pay much interest. Inflation is higher so you’ll lose purchasing power. Bond fund prices also decline when inflation increases. The easiest way to stay even with inflation is to buy inflation-protected bonds – TIPS. The I Bonds from the US Treasury have a 7.12% initial interest rate and it will adjust for inflation. You can buy $10,000 of these per person per year from Treasury Direct.

Invest for the long term

The most important thing about investing is to take the long-term view. Don’t panic when the stock market crashes. Your net worth will decrease, but you’ll be just fine as long as your cash flow is positive. Eventually, the stock market will go up. Keep investing and you’ll come out ahead later. Here is some advice for individual investors everywhere.

  • Don’t invest the money you need. If you need money to pay for college, a house, a car, or anything, then don’t invest that money. The market can crash and you’ll be forced to take a loss. Invest only the money you don’t need anytime soon.
  • Diversify. Don’t put all your eggs in one basket. Netflix was a great investment over the last few years, but its stock dropped over 60% since the beginning of the year. If you want more stability, then you need to diversify and spread your investment out among different sectors and asset classes.
  • Invest in companies with pricing power. When inflation is high, invest in companies that can raise their price. Would you pay 10% more to watch Netflix, especially if you’re struggling to put food on the table? Probably not. But apparently, people are willing to pay more for Apple products even when they have to eat ramen for dinner. Some brands have the power to raise their prices and some don’t.
  • Real estate. Investing in real estate is a great way to diversify. If you’re lucky, you locked in a low mortgage rate over the last few years. High inflation will make those mortgage payments less painful (cheaper) every year. You can also invest in rental properties and commercial properties to profit even more. The United States still has a housing shortage. I invest in commercial properties around the US with CrowdStreet. It’s a great way to generate passive income because I don’t want to be a hands-on landlord anymore. It’s too much work.
  • Commodities. Historically, commodities go through the roof when there is a war. Food and energy already have high inflation, but all commodities will get a lot more expensive if the war in Ukraine spreads. China might try to reunify Taiwan so that’s another factor to take into account. I hope not, but you never know what a dictator will do. 
  • Fees matter. In 2021, over 80% of actively managed funds underperformed the S&P 500 index. Most investors are better off when they invest in passive index funds with low fees. Imagine paying 2% fees on top of losing a bunch of money from the stock market decline. That’d hurt.
  • Value stocks. Value stocks tend to do better than growth stocks in a high inflationary environment. Growth companies that rely on debt to grow will have a more difficult time because they’ll have to pay high interest. Value companies tend to have better cash flow which makes them more stable.
  • Invest in yourself. Last but not least, you need to invest in yourself. Increasing your skills and exploring your creative side will pay off in the future. The world is always changing and you need to change with it. You have to be flexible and adapt.

An Uncertain World

Ultimately, preparing for the changing world order is very similar to what we already should be doing. We need to earn more than we spend so we can invest the difference. We should ignore short-term volatility and keep investing consistently. Also, diversify with real estate, commodities, and other assets. High inflation might look scary, but history shows that investors will be fine over the long haul. So we need to keep investing through the thick and thin.

The world order is changing, but nobody knows how long this process will take. Ray Dalio thinks China will take over the world soon. However, I’m not so sure. China has a lot of problems they need to deal with. Instead of the next superpower, they might become the next Japan. Who knows? Anyway, I doubt China will become the de facto world leader in the next few years. We have plenty of time to prepare for the coming struggle, hopefully…

What do you think? How can we prosper while the world order is changing?

Real estate probably will continue to perform well. We still have a housing shortage in the US and people need to live somewhere. Check out CrowdStreet if you want to generate passive income from commercial real estate. It’s way easier than being a landlord.

Image credit: Wance Paleri

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Joe started Retire by 40 in 2010 to figure out how to retire early. After 16 years of investing and saving, he achieved financial independence and retired at 38.

Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!

Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.
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18 thoughts on “Investing in The Changing World Order”

  1. It is amazing to see western educated people keep on saying China wants to rule the world…look at history China had not gone outside to conquer other territories except Yuan dynasty which was ruled by Mongolians. Do not use western lenses to look at China. Taiwan is part of China and it is reunification not conquer….

  2. Yeah, Ray Dalio has been a superfan of China for quite a while. I am wondering what assets one could invest in the meantime in China (or as a proxy to China) in an attempt to hedge against the declining dollar?

    • Agree, heard him talk about China quite a lot! That’s definitely an interesting thought.

      Know a lot of emerging market funds regularly hold a lot of stocks from China. However, they’re also quite unpredictable, for example like them putting policies in place that recently caused quite a sell-off by targeting Chinese companies listed on US stock exchanges. Probably a long term play on their part, so may be an opportunity.

      I think looking into India could be another option as their size rivals China. Broadly similar population sizes at circa 1.4 billion and also has a high growth economy. Have you got any thoughts?

  3. Definitely agree with your concerns about investing in a changing world order. I think a lot of people are going to be unprepared, especially those that are relying on future growth projections that could easily be eaten up by inflation.

    Also a fan of Ray Dalio, watched that video before and it’s great. Had his book, Principles, on my to read list for quite a while! Have you read that?

  4. The part about reserve currency was definitely an interesting point in the video. I have learned a lot from it.

    How was your experience with Crowdstreet in terms of annual return compared to stocks?
    What % of your portfolio is invested there? I read somewhere that you need to be an accredited investor. Is that for all the investors on the site or just some properties?

    • In the long term, stocks are better but real estate is more stable.
      Each project is different. Generally, I got 5-8% over the first few years. Then a bigger payout when the project completes and they sell the property. The best project I had returned 23% ROI (annually). The average of all projects I participated in was around 12% ROI.
      We have less than 5% of our portfolio there. Most of our portfolio is invested in passive index funds in our retirement accounts.
      You have to be an accredited investor to participate at CrowdStreet. Fundrise has REIT that non accredited investor can participate in.

  5. It’s interesting how you need to be proactive with your money. Hope for the best but prepare for the worst. I’m always looking for opportunities that float up to help make each dollar a little stronger. We’ve been adding more to Series I Bonds last year and this year since that one’s a no-brainer. Great tips for folks to get their houses in order, Joe!

  6. Hi Joe, while I agree with you on most of your suggestions in how to invest during uncertain time, I find them not particularly relevant to the changing world order.

    If China or other economies surpass US in terms of GDP or even replacing USD as the reserve currency, how should we invest to prepare for that outcome? Invest more outside of the US? Thoughts?

    • Real estate is still a good bet because the US has a housing shortage.
      Invest outside the US? I think a little is good, but the US has the best companies now.
      Chinese companies are getting hammered due to Covid and central planning. Maybe it’s a good time to buy? Be greedy when others are fearful…
      I’d invest in companies that generate most of their revenues in America. Global companies probably will lose a lot of customers if the world becomes more fragmented.

  7. I didn’t have a chance to watch that video, but I hope to do it later. Some of these assets are already getting expensive. Commodities have been going up for some time. Real estate is possibly in a bubble. We’re selling a property now and cashing out. We’ll invest conservatively and look for opportunities in the future.

    In the meantime, I’m looking to grow businesses, my dog sitting service and websites that will hopefully bring in more cashflow.

    • The video is quite interesting, but don’t believe everything he says. I’m sure he’s wrong on some stuff. China has a ton of problems and he doesn’t even mention any of them. Of course, the book might have more details. I’ll read it soon.
      Great job cashing out. I’d like to sell our rental too. We’ll put it on the market early next year when our renter leaves. I hope the interest rate won’t get too high.

  8. You know, there’s always someone who believes they can predict the future. Sometimes they’ll be right, but most of the time they’ll just be wrong.

    I have no idea if you’ll be right or wrong about this “new world order” Joe, but spending less than you earn, and investing the rest is a timeless formula that’s worked under countless “world orders”.

    That’s probably good enough for me. 🙂

    • I don’t know who will be the next world leader, but there is a struggle coming.
      Yes, we can stick with the tried and true formula. Make sure you have positive cash flow and you’ll be okay!

  9. Your first bullet is emotional and way off. Read the “next 100 years” by George Friedman. While American psyche tends to have an insecurity with a penchant to say the US is in decline, the facts don’t support it, at all. Russia is as good as dead demographically, they are doing this now while they have military age males for an army. I usually like your content; recent geopolitical events are disturbing, but the overall data points to a US centric century.

    • I’ll read the “next 100 years”. It’d be great to see a different point of view. However, the US enjoyed being a hegemony for many years. We can’t deny that there are other players now. EU and China in particular. Thanks for your input.


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