One of the surest ways to make investment profits is to find companies developing the breakthrough technologies of the future. One such technology is 5G, the next-generation of wireless connectivity.

An analyst who’s well-versed on the topic of 5G is my colleague Scott Chan. I turned to Scott for this week’s Big Interview.

Scott Chan (pictured here) is the lead analyst for Real World Investing and The Complete Investor. He’s also an expert on China and its economy. I sat down with Scott this week to discuss 5G technology, the U.S.-China trade war, and the battle for the future.

You’ve written extensively about 5G, the next generation of wireless technology. Why is 5G so important?

The previous wireless generation, 4G, brought along an explosion in the use of smartphones and data consumption thanks to much faster wireless transfer speeds. 5G, though, will entail far more than just faster mobile data transfers. It’s poised to be the foundation to support a new generation of infrastructure.

The expected improvements in transfer speed, capacity, and response times have the potential to bring about leaps in connectivity and autonomous devices the world’s never seen before.

Autonomous cars, artificial intelligence, virtual reality and augmented reality, the Internet of Things, and smart cities are only a few major technological advances 5G will enable. The potential applications are endless and this is why 5G is so exciting.

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That said, 5G technologies are still being tested in the U.S. and it will likely take several years for national deployment of 5G services. The telecoms are marketing 5G services now, but they are barely just scratching the surface.

They are still testing 5G roll-outs in limited areas and in at least one case what is hyped as 5G (AT&T’s 5G E) is simply an upgrade to existing technology. The real 5G technologies that will change lives are still down the road.

However, despite some misleading marketing from telecoms nowadays, 5G is coming and it will bring to reality many capabilities that even 15 years ago seemed like science fiction.

How does the trade war affect 5G development?

The trade war is about more than trade. The fight also is about 5G leadership in the long term. The Trump administration is using tariffs as a way to get China to make broad changes to its economic policies ranging from intellectual property theft, restrictions against U.S. companies operating in China, and Beijing’s subsidization of domestic companies in strategic industries.

China’s practices have put it ahead in the 5G race and the U.S. is trying to level the playing field.

According to the Defense Innovation Advisory Board, a group of tech bigwigs who advise the U.S. Department of Defense: “The country that owns 5G will own many of these innovations and set the standards for the rest of the world…That country is currently not likely to be the United States.”

Beijing’s strong support has helped Chinese companies become well-positioned 5G developers and suppliers. China is on track to be the first country to roll out a wide-area (i.e., covering a large area) true 5G network.

However, Chinese law enacted in 2017 mandates that Chinese companies cooperate with the government in national intelligence work, so that creates concerns that Chinese equipment may intentionally contain vulnerabilities that could be exploited. The fear is that this would allow the Chinese government backdoor access into sensitive U.S. networks and systems.

This is why the White House has argued that national security concerns compel it to prevent Huawei, the world’s largest manufacturer of broadband gear, from supplying the U.S. with 5G infrastructure. Trump is trying to convince U.S. allies to do the same.

The U.S. and China may end up deploying different 5G standards and technologies and the rest of the world will have to choose which side they use.

Pinpoint other breakthrough technologies that present enormous investment opportunities.

5G itself forms the backbone of infrastructure that will enable many other technologies. For example, wide use of autonomous cars would not be possible (or safe) without the low latency promised by 5G networks. Latency is the time it takes to respond to information.

When driverless cars communicate with one another and with central servers, instantaneous communication could mean the difference between life and death. I mentioned other technologies in my first answer and those all have a lot of growth potential.

Separately from 5G, I am particularly intrigued by potential breakthroughs in health care. Gene therapy is a fast-growing area of medical research I’ve been following. The therapy tries to prevent or treat a disease by manipulating the patient’s DNA. Whereas most currently available drugs require repeated dosing, one treatment of gene therapy could be enough.

Right now, gene therapy research is generally focused on disorders of the central nervous system, blood and the eye, but future advances could broaden the field to other conditions and open up many opportunities.

There are only two FDA-approved in vivo gene therapies but there are dozens more in the pipeline. “In vivo” means the DNA change happens inside the patient’s body.

Let’s turn to the economy. Do you foresee a recession occurring soon?

The economic data have been mixed. Consumer sentiment in August experienced the biggest monthly drop since 2012. Consumer spending pretty much drove GDP growth in the second quarter, so that’s definitely something to watch out for.

The inverted Treasury yield curve, which is the spread between the 2-year and 10-year yields, has gotten a lot of news headlines lately because seven out of the last nine times it’s happened, a recession followed within 24 months. The last time the curve inverted was before the Great Recession.

However, we never saw quantitative easing on the scale that the Fed and other central banks undertook in the wake of the 2008 crisis. Their massive purchases of long-term bonds could have thrown the scale off enough that the inverted yield may not be as reliable a predictor as it was before.

Negative bond yields in Japan and Europe also could have artificially deflated Treasury yields, by causing Japanese and European bond buyers to purchase Treasury notes instead.

Furthermore, the Fed is aware of the economic risks and has returned to a dovish path. Interest rate hikes in recent years have given the Fed leeway to ease.

I think the chances of a recession occurring by the end of 2020 are still less than 50-50. Of course, if the trade war escalates, the odds would rise. The wildcard is President Trump and how far he’s willing to go.

I would be surprised if China makes any major concessions, especially with the U.S. elections coming up in 2020. It boils down to whether the White House is willing to accept some minor compromises and call it a victory.

How can investors prepare for a recession?

Despite occasional scary periods, the stock market historically rises. Even during the financial crisis, investors who hung tight made back their money and then some. I don’t think selling everything and heading for the hills is a good move.

Rather, I favor repositioning one’s portfolio toward more defensive stocks that typically aren’t economically sensitive. Think utilities, which have stable businesses and a domestic focus. Gold makes sense, too.

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Temporarily buying fixed income instruments offers additional protection. I don’t think they should be held for long though. Stocks significantly outperform bonds over time. You rob yourself of upside if you sit in bonds for too long.

If you decide to go to cash for a good chunk of your portfolio, consider buying money market funds or short-term CDs, which give you a better yield on your cash than just sitting in cash.

If you think the market is about to fall, consider harvesting some losses in your taxable accounts. This kills two birds with one stone because you reduce your market exposure and your tax bill at the same time. The risk to this strategy is that the stocks you sell may rally instead of fall.

Editor’s Note: As my colleague Scott Chan just discussed, 5G represents one of the greatest investment opportunities that you’ll see in your lifetime. For details on how to profit from the unstoppable momentum of 5G, click here now.