PROTECTION AND WEALTH BUILDING STRATEGIES 213Once the deflation fear has passed, though, and interest
rates rise, WHOSX is at risk of falling in value.
SHY, on the other hand is flat. It doesn’t move and doesn’t
pay any measurable amount of yield. But that doesn’t mean
it’s a frivolous recommendation. On the contrary, SHY is one
of the safest places to park cash that you may want to use for
buying stocks or bonds or real estate after the deflation panic
has passed.
SHY is like the ultimate form of cash in your brokerage
account.
■ Why You Should Consider Owning Both
WHOSX and SHY
It’s good to own both because WHOSX is more of a deflation
“trade,” with risk and reward, while SHY is more like a cash
vault. Essentially, SHY is akin to “cash sitting in a safe” inside
your brokerage account, ready at the click of a mouse to buy
assets that others are panicking to sell.
If we continue to have mild inflation, soaring stocks and
the Fed holding rates at zero, the risk is that you might hold
back the potential performance of your portfolio. SHY will
yield little (until the Fed starts raising interest rates).
Also, SHY steadily loses real value if inflation persists. But
the other parts of your portfolio —inflation hedges like Franco-
Nevada (NYSE: FNV) — should keep you ahead of inflation.
If the Fed surprises investors in 2015 and raises rates...
both SHY and WHOSX will do well.
The biggest risk is the resumption of an inflationary envi-
ronment. Interest rates would rise, which would depress the
value of long-term Treasuries. The value of WHOSX would
start falling, too.
In the early stages of an inflationary sea change, SHY
would gain. It would not fall in value, while it would start re-