How are you preparing for inflation and higher interest rates?

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Nate79
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Re: How are you preparing for inflation and higher interest rates?

Post by Nate79 »

physixfan wrote: Sat Jun 12, 2021 4:26 pm
Nate79 wrote: Sat Jun 12, 2021 3:09 pm
physixfan wrote: Sat Jun 12, 2021 2:15 pm Getting a mortgage as big as possible. Locking in a low interest rate (<3%) for 30 years. Expecting the inflation to inflate the debt away.
How do you think inflation will inflate the debt away?
$1M today is a big debt, but if inflation is high and someday your annual salary becomes $1M, then the debt (which is a fixed value) is really small in comparison. In the mean time the house price rises with inflation.
I agree that if you get a raise, make more money it is easier to pay back a fixed debt. Increased income pays off debt easier.

That's not inflation.
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physixfan
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Re: How are you preparing for inflation and higher interest rates?

Post by physixfan »

Nate79 wrote: Sat Jun 12, 2021 4:32 pm
physixfan wrote: Sat Jun 12, 2021 4:26 pm
Nate79 wrote: Sat Jun 12, 2021 3:09 pm
physixfan wrote: Sat Jun 12, 2021 2:15 pm Getting a mortgage as big as possible. Locking in a low interest rate (<3%) for 30 years. Expecting the inflation to inflate the debt away.
How do you think inflation will inflate the debt away?
$1M today is a big debt, but if inflation is high and someday your annual salary becomes $1M, then the debt (which is a fixed value) is really small in comparison. In the mean time the house price rises with inflation.
I agree that if you get a raise, make more money it is easier to pay back a fixed debt. Increased income pays off debt easier.

That's not inflation.
I don’t think it is possible to have a high inflation while the (nominal) median salary stays flat. The salary will rise with inflation, at most with a few years lag.
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Taylor Larimore
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Re: How are you preparing for inflation and higher interest rates?

Post by Taylor Larimore »

Bogleheads:

I suspect that more money has been lost worrying about inflation than inflation itself.

I retrieved historical returns of a stock and bond portfolio going back to the late 70s which was the last time the United States suffered significant inflation. You can see what happened to a Three-Fund Portfolio HERE.

Best wishes
Taylor
Jack Bogle's Word's of Wisdom: "Stay the course."
"Simplicity is the master key to financial success." -- Jack Bogle
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Nate79
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Re: How are you preparing for inflation and higher interest rates?

Post by Nate79 »

physixfan wrote: Sat Jun 12, 2021 4:34 pm
Nate79 wrote: Sat Jun 12, 2021 4:32 pm
physixfan wrote: Sat Jun 12, 2021 4:26 pm
Nate79 wrote: Sat Jun 12, 2021 3:09 pm
physixfan wrote: Sat Jun 12, 2021 2:15 pm Getting a mortgage as big as possible. Locking in a low interest rate (<3%) for 30 years. Expecting the inflation to inflate the debt away.
How do you think inflation will inflate the debt away?
$1M today is a big debt, but if inflation is high and someday your annual salary becomes $1M, then the debt (which is a fixed value) is really small in comparison. In the mean time the house price rises with inflation.
I agree that if you get a raise, make more money it is easier to pay back a fixed debt. Increased income pays off debt easier.

That's not inflation.
I don’t think it is possible to have a high inflation while the (nominal) median salary stays flat. The salary will rise with inflation, at most with a few years lag.
It hasn't been true in the past so why should it always happen in the future? In fact there was a long 20 year period starting in the early 70s where wages lost to inflation.

And this assumes you have an income.
Ron Ronnerson
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Re: How are you preparing for inflation and higher interest rates?

Post by Ron Ronnerson »

rockstar wrote: Sat Jun 12, 2021 4:30 pm
physixfan wrote: Sat Jun 12, 2021 4:26 pm
Nate79 wrote: Sat Jun 12, 2021 3:09 pm
physixfan wrote: Sat Jun 12, 2021 2:15 pm Getting a mortgage as big as possible. Locking in a low interest rate (<3%) for 30 years. Expecting the inflation to inflate the debt away.
How do you think inflation will inflate the debt away?
$1M today is a big debt, but if inflation is high and someday your annual salary becomes $1M, then the debt (which is a fixed value) is really small in comparison. In the mean time the house price rises with inflation.
And this assumes you don't default by carrying too much debt.
It does assume that but the low interest rate that you're locked into greatly helps your chances on that front. I have a $500k mortgage with an income of $115k. Some people would say that I have bought too much house. However, the payments are fairly small due to the low rate and much of the payment goes toward principal rather than interest, also thanks to the low rate. Imagine what would happen after several years of high inflation. Salary would go up and up to keep up with rising costs and it would become even easier to make those mortgage payments since they're fixed.

Physixfan: I totally get what you're saying and agree with you.
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Re: How are you preparing for inflation and higher interest rates?

Post by seajay »

Some fret over recent negative real yields however in my living memory (1980's) I recall high inflation/interest rates and taxation. Basic (average) taxation rates of 38%. 15% interest/inflation, 10% net interest; Or 15%+ mortgage interest rate payable out of taxed wages. Twas a lot more negative real back then compared to recent. 20 something me working all the overtime I could get still had insufficient income to cover mortgage payments + spending, had to move back into my parents home and rent the property for a few years.

Better/good times followed. Same for stocks. The main risk factor as I see it is being able to get through the bad times with sufficient capital remaining to be compensated for during the good times. Negative real investment rewards for a decade combined with withdrawals (retired) can pull down capital value to levels where even with subsequent great gains that's immaterial relative to to such a low 'start' date base.

4% SWR where real portfolio value halves is no different to starting with a 8%, a considerably reduced prospect of success. Have enough that 2% SWR is OK and if values halve and SWR % rises to a effective 4% rate then likely that will still be fine. So my preparation is having 50x+ of 'tight' spending along with a element of liability matching i.e. owning (both landlord and tenant) rather than renting.

Much less of a issue for those still accumulating as the downs are a opportunity to better cost-average.
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Re: How are you preparing for inflation and higher interest rates?

Post by scamper »

Staying the course with allocations, but continuing to directly manage the bond allocation rather than using something like BND. Maintaining IAU allocation around 5%. Also refinanced the mortgage at a lower 30 year rate - looking to ride that low rate until the CD's mature then re-evaluate.

For bond allocation:
1. I-bonds purchased each year to max allowed, including paper bonds issued via tax refund method.
2. Funding credit union CD's opened during the higher rate period in 2018-2019 which allow follow on deposits - GTE, MACU, PSECU - 3 to 4% APR. That party ends in 2024.
3. Holding individual TIPS purchased in 401k with real yields 0.5 to 1.0%.

I never expected the add-on CD's to end up being so strategic - as bad as the credit unions are getting burned, wonder if we will ever see those again...
Last edited by scamper on Sat Jun 12, 2021 10:11 pm, edited 2 times in total.
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Re: How are you preparing for inflation and higher interest rates?

Post by nisiprius »

Robot Monster wrote: Sat Jun 12, 2021 9:16 am
nisiprius wrote: Sat Jun 12, 2021 6:47 am As livesoft has noted, this is probably an unfavorable instant in time to buy TIPS because they've had a small uptick recently, doubtless because of purchases driven by inflation fears, but it doesn't amount to much.
One of the most valuable things I learned from Bogleheads is not to try and second guess the market, because second guessing the market inevitably leads to an undesirable kind of market timing. It seems to me that saying, "this is probably an unfavorable instant in time to buy TIPS" might encourage some people to wait for a better entry point which is market timing...

Willthrill had a post about "Inconsistencies with the Boglehead principles?" and one of them is the belief among some here that "you cannot market time stocks, but you can market time bonds". link We should do our best to not try to perpetuate the idea that indeed can be done.
Yeah, you're right. I'm just going to delete that line. As well as another, intended in a spirit of confession, that I've shifted a small percentage of my bond allocation from nominals to TIPS in the last couple of years.
I'd like to share with you something vineviz shared with me, these market-timing headlines from TipsWatch:

Feb 2020: "This New 30-Year TIPS Looks Like A 'Death Star' Investment"
Aug 2019: "This Week's 30-Year TIPS Auction Is Priced For Disaster"
Feb 2019: "This Week's New 30-Year TIPS Still Isn't A Winner"
Oct 2018: "30-Year TIPS Auction: Still Looks Too Risky"
Jun 2018: "Say 'No' To This Week's 30-Year TIPS Auction"
Feb 2018: "A New 30-Year TIPS? Skip It"
Oct 2017: "Is Thursday's 30-Year TIPS Reopening Another Halloween Scare?"
Jun 2017: "30-Year TIPS Reopening Auctions With A Disappointing Real Yield Of 0.88%"
Feb 2017: "This New 30-Year TIPS Might Not Be A Great Investment"
Oct 2016: "Up Next: 30-Year TIPS Reopens At Auction Oct. 20; This One Is Going To Cost You"
Jun 2016: "Coming Wednesday: A Particularly Ugly Reopening Auction For A 30-Year TIPS"
:P Those are great.
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Re: How are you preparing for inflation and higher interest rates?

Post by seajay »

nisiprius wrote: Sat Jun 12, 2021 8:21 pmI'd like to share with you something vineviz shared with me, these market-timing headlines from TipsWatch:

Feb 2020: "This New 30-Year TIPS Looks Like A 'Death Star' Investment"
Aug 2019: "This Week's 30-Year TIPS Auction Is Priced For Disaster"
Feb 2019: "This Week's New 30-Year TIPS Still Isn't A Winner"
Oct 2018: "30-Year TIPS Auction: Still Looks Too Risky"
Jun 2018: "Say 'No' To This Week's 30-Year TIPS Auction"
Feb 2018: "A New 30-Year TIPS? Skip It"
Oct 2017: "Is Thursday's 30-Year TIPS Reopening Another Halloween Scare?"
Jun 2017: "30-Year TIPS Reopening Auctions With A Disappointing Real Yield Of 0.88%"
Feb 2017: "This New 30-Year TIPS Might Not Be A Great Investment"
Oct 2016: "Up Next: 30-Year TIPS Reopens At Auction Oct. 20; This One Is Going To Cost You"
Jun 2016: "Coming Wednesday: A Particularly Ugly Reopening Auction For A 30-Year TIPS"
:) So like a trading firm that retains the worst trader ever with a small account as a means to make serious money from going counter direction, has shorting market-timers ever been analyzed as a potentially viable market-timing strategy? :)
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Re: How are you preparing for inflation and higher interest rates?

Post by TheDDC »

I’m “staying invested, my friend” as your signature mentions. New money into 75/25 VTSAX/VTIAX.

-TheDDC
Rules to wealth building: 75-80% VTSAX piled high and deep, 20-25% VTIAX, 0% given away to banks.
Gaston
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Re: How are you preparing for inflation and higher interest rates?

Post by Gaston »

Nathan Drake wrote: Sat Jun 12, 2021 12:45 am ExUS, EM, and SCV is roughly 80% of my portfolio, I suspect it will do well with an increase in inflation
Just curious: Why would exUS do well with an increase in inflation? If it were only a US phenomenon?
“My opinions are just that - opinions.”
texanghost
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Re: How are you preparing for inflation and higher interest rates?

Post by texanghost »

Gaston wrote: Sat Jun 12, 2021 8:44 pm
Nathan Drake wrote: Sat Jun 12, 2021 12:45 am ExUS, EM, and SCV is roughly 80% of my portfolio, I suspect it will do well with an increase in inflation
Just curious: Why would exUS do well with an increase in inflation? If it were only a US phenomenon?
US inflation indicates that the US dollar has less value, with each dollar buying less goods and services. If other currencies do not inflate along with the dollar and maintain their purchasing power, they have gained value in relation to the dollar. Thus, goods and services produced by ex-US companies will be worth more US dollars, and their stock prices denominated in USD should reflect this.
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Re: How are you preparing for inflation and higher interest rates?

Post by Leif »

Nothing in relation to recent news. But I have, over the years, bought TIPs Index funds. Both short and intermediate term. About 20-25% of my fixed income. Also hold a short term nominal index fund. However, I must say, the majority of my fixed income is IT bond fund. It may, for a time, lose NAV, but I'll be paid a higher interest rate. In the meantime, if I need it, and if inflation takes hold, I have the other funds to pull from.
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Re: How are you preparing for inflation and higher interest rates?

Post by Sandtrap »

Taylor Larimore wrote: Sat Jun 12, 2021 4:45 pm Bogleheads:

I suspect that more money has been lost worrying about inflation than inflation itself.

I retrieved historical returns of a stock and bond portfolio going back to the late 70s which was the last time the United States suffered significant inflation. You can see what happened to a Three-Fund Portfolio HERE.

Best wishes
Taylor
Jack Bogle's Word's of Wisdom: "Stay the course."
Thanks for posting an outstanding reminder to:
1. Keep things in context (broader view)
2. Stay the course

(For a real life example of earning power over time. My FIL, WWII vet as well, invested $40,000 into Total Stock at its inception in 1992. 5 years ago, the total value was $386,000. It was left untouched and on auto-reinvest all those years.)

j :D

Your posted chart quoted to help others. :D
Bogleheads:

It is important for investors to understand the past performance and interaction of inflation, bonds and stocks (U.S. and International). Below are long term U.S. Inflation Rates; Aggregate Bond Index Returns; S&P 500 Total Return Index; and the MSCI EAFE Total Return Index (updated 6-15-2020):

YEAR--INFLATION--BOND INDEX--S&P 500 T.R. INDEX--MSCI EAFE T.R.INDEX
1976-------4.9%--------15.6%------------23.8%--------------------3.6%
1977-------6.7-----------3.0-------------(-7.2)-------------------17.5
1978-------9.0-----------1.4---------------6.6--------------------33.1
1979------13.3-----------1.9--------------18.4-------------------10.9 (Highest Annual Inflation Rate)
1980------12.5-----------2.7--------------32.4-------------------25.4
1981-------8.9-----------6.3-------------(-4.9)------------------(-2.5)
1982-------3.8----------32.6--------------21.6------------------(-0.3) (Highest Bond Index Return)
1983-------3.8-----------8.4--------------22.6-------------------24.8
1984-------3.9----------15.2---------------6.3--------------------3.5
1985-------3.8----------22.1--------------31.7-------------------51.4
1986-------1.1----------15.2--------------18.7-------------------65.8 (Vanguard Total Bond Market Inception )
1987-------4.4-----------2.8----------------5.2-------------------24.6
1988-------4.4-----------7.9---------------16.6-------------------27.8
1989-------4.6----------14.5---------------31.7------------------11.4
1990-------6.1-----------8.9---------------(-3.1)---------------(-22.8)
1991-------3.1----------16.0---------------30.5------------------12.4
1992-------2.9-----------7.4-----------------7.6----------------(-11.9) (Vanguard Total Stock Market Inception)
1993-------2.7-----------9.7----------------10.1------------------32.6
1994-------2.7---------(-2.9)----------------1.3--------------------7.6 (Lowest Bond Index Return)
1995-------2.5----------18.5---------------37.6-------------------11.8 (Highest S&P Index Return)
1996-------3.3-----------3.6----------------23.0--------------------7.2 (Vanguard Total International Stock Market Inception
1997-------1.7-----------9.7----------------33.4--------------------2.6
1998-------1.6-----------8.7----------------28.6-------------------19.1
1999-------2.7---------(-0.8)---------------21.0-------------------28.3
2000-------3.4----------11.6---------------(-9.1)----------------(-15.8)
2001-------1.6-----------8.4--------------(-11.9)----------------(-19.8)
2002-------2.4----------10.3-------------(-22.1)----------------(-15.3)
2003-------1.9-----------4.1----------------28.7-------------------40.4
2004-------3.3-----------4.3----------------10.9-------------------20.9
2005-------3.4-----------2.4-----------------4.9-------------------15.8
2006-------2.5-----------4.3----------------15.8------------------26.8
2007-------4.1-----------7.0-----------------5.5------------------11.6
2008-------0.1-----------5.2--------------(-37.0)---------------(-43.1) (Lowest U.S. and International Stock Returns)
2009-------2.7-----------5.9----------------26.5------------------32.5
2010-------1.5-----------6.5----------------15.1-------------------8.2
2011-------3.0-----------7.7-----------------2.1----------------(-11.7)
2012-------1.7-----------4.3----------------16.0------------------17.9
2013-------1.5---------(-2.0)---------------32.4------------------23.3
2014-------1.6-----------6.0----------------13.7-----------------(-4.5)
2015-------0.7-----------0.5-----------------1.4-----------------(-0.4)
2016-------2.1-----------2.6----------------12.0-------------------1.5
2017-------2.1-----------3.5----------------21.8------------------25.6
2018-------2.5---------(-0.1)--------------(-4.4)---------------(-13.4)
2019-------2.3-----------8.7----------------31.5------------------22.7
2020-------1.4-----------7.7----------------18.4------------------11.3

Sources: U.S. Labor Department (CPI-U); Bloomberg Barclays Aggregate Bond Index; Standard & Poors; and DFTurner

Lessons learned:

* Past performance does not forecast future performance.

* The Aggregate Bond Index (benchmark for Vanguard Total U.S.Bond Market Index Fund) had only four negative years (all small) reflecting very low risk.

* In 2008 the S&P 500 Stock Index plunged (-38.5%). During the next 2 years it gained +41.52% (stay-the-course).

* Foreign Stocks enjoyed the highest annual return (1986).

* Table demonstrates the futility of using past performance to forecast future performance.

* Diversification is important.

* Inflation climbed from 4.9% in 1976 to 13.3% in 1976. During that period a combination of Total Bond Market and stocks beat inflation.

* Think long-term.

Best wishes
Taylor
Jack Bogle's Words of Wisdom: "It becomes increasingly clear that a strategy of staying the course is inevitably far more productive than marking timing, or hopping from one stock--or a particular mutual fund--to another."
Wiki Bogleheads Wiki: Everything You Need to Know
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dziuniek
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Re: How are you preparing for inflation and higher interest rates?

Post by dziuniek »

Not prepaying mortgage or any other debts. (all low rates)
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Re: How are you preparing for inflation and higher interest rates?

Post by cashboy »

i am staying the course; sticking to my IPS.
Three-Fund Portfolio: FSPSX - FXAIX - FXNAX (with slight tilt of CASH - Canned Beans - Rice - Bottled Water)
manuvns
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Re: How are you preparing for inflation and higher interest rates?

Post by manuvns »

taking out as much low interest debt as i can .
Thanks!
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Re: How are you preparing for inflation and higher interest rates?

Post by Scooter57 »

Those hoping for inflation are missing an important point.

If inflation is sustained companies have more motivation to cut costs. The easiest way is to fire highly paid workers and replace them with either a) foreign workers requiring lower wages, b) young new hires, or c) AI/robots. You may think your experience is too valuable to the company, but I have seen far too many corporations replace talented staffs with much cheaper, far lower quality staff to think this is a deterrent. Yes the company suffers, but the top execs have cashed in their options and retired by the time it becomes clear.

The obsession with cost cutting and off shoring kicked in at the time that inflation was a serious issue in the 1980s. We are in a much more monopolistic economy new, with gar fewer companies and stocks. The more consolidation, the fewer jobs.

Be careful what you wish for!
Caduceus
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Re: How are you preparing for inflation and higher interest rates?

Post by Caduceus »

If I were an institution, I would borrow at much as I could at fixed low interest rates for as long as I could. Some people are already doing that. Warren Buffett keeps on issuing debt (some in foreign denominations) even though he's sitting on piles of cash.

But, alas, I am not an institution, and no one will lend to me on terms that I want.
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Re: How are you preparing for inflation and higher interest rates?

Post by Tib »

Last spring and fall I upped my long-time (and long-underperforming) fund of commodity producers from 5% to 10% and added a fund of foreign stocks (which have long underperformed U.S. stocks). For many years I've used a fund of directly owned commericial real estate (TREA) as a substitute for bonds. I'm hoping that all of these positions will outperform TSM and TBM if we have higher, more sustained inflation than many expect, limiting the financial damage to my currently comfortable retirement.
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Re: How are you preparing for inflation and higher interest rates?

Post by rockstar »

I started a new position in TTT today. I'm shorting the long term bond. Depending on what the Fed does tomorrow, I might buy long dated calls in the money on TTT. This is a very small position about 1% of my total holdings.
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Re: How are you preparing for inflation and higher interest rates?

Post by Robot Monster »

There is a new Wall Street Journal article, "Investors Hide From Inflation in Real-Estate Stocks". link

"Investors need to sweat the details of their real-estate bets: Some properties, like offices and retail, can have very long leases. If those agreements don’t adjust rent to account for inflation, landlords could see their real incomes shrink. But overall, equity investors see the sector as an attractive corner of the market when prices are rising."
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Re: How are you preparing for inflation and higher interest rates?

Post by Nowizard »

We just look at it as market and economic cycles based on our history over many years of investing. That history includes periods with inflation and the commonly accompanying higher interest rates. Though some may chart this and elaborate, our perceived experience is that the economy has done well either previous to the inflation or when it is occurring. Interpretively, at least in our case, that has translated to market returns continuing to hold the same basic relationship to our investment goals and inflation as in the past (Both higher), or that there have been higher than anticipated returns from investments in the period of time immediately prior to inflation increases (Potentially, a major factor in interest increase). For us, the combination of looking at investment "success" either shortly prior to inflation/interest increases or the increase in market returns accompanying inflation and interest increases has said any concern has primarily been related to volatility rather than damage to our investments.

Tim
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Re: How are you preparing for inflation and higher interest rates?

Post by Horton »

It’s best to prepare for inflation when no one is worried about it. March 2020 would have been a great time. As contrary as it sounds, this is probably the best time to prep for deflation (because no one is worried about it).
80% global equities (faith-based tilt) + 20% TIPS (LDI)
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Re: How are you preparing for inflation and higher interest rates?

Post by KlangFool »

Horton wrote: Wed Jun 16, 2021 1:35 pm It’s best to prepare for inflation when no one is worried about it. March 2020 would have been a great time. As contrary as it sounds, this is probably the best time to prep for deflation (because no one is worried about it).
Horton,

And, if someone is preparing for deflation, keeping a lot of CASH is the usual advice. What we see in the forum is folks are exchanging CASH to everything else. Aka, CASH is TRASH!

I know that I know nothing. Everything is possible. Hence, I am diversified across Stock, Bond, CASH, and physical Gold/Silver.

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
ScaledWheel
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Re: How are you preparing for inflation and higher interest rates?

Post by ScaledWheel »

This is a very beginner question, but the Fed indicated that it would do a rate hike in 2023. Does this mean that we can expect interest rates to remain around their current rates until the time in 2023 when they actually do the rate hike?

In reference to this thread, I'm considering refinancing a rental property but would like to spend the cash I would use to get to 80% LTV to instead do some maintenance a little ahead of time, and that would be fine if I could count on rates staying low for the next year.
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Re: How are you preparing for inflation and higher interest rates?

Post by Horton »

KlangFool wrote: Wed Jun 16, 2021 1:48 pm
Horton wrote: Wed Jun 16, 2021 1:35 pm It’s best to prepare for inflation when no one is worried about it. March 2020 would have been a great time. As contrary as it sounds, this is probably the best time to prep for deflation (because no one is worried about it).
Horton,

And, if someone is preparing for deflation, keeping a lot of CASH is the usual advice. What we see in the forum is folks are exchanging CASH to everything else. Aka, CASH is TRASH!

I know that I know nothing. Everything is possible. Hence, I am diversified across Stock, Bond, CASH, and physical Gold/Silver.

KlangFool
Having a plan for all situations and sticking to it is the best approach. And, if you have to do something, saving more (spending less) is probably better than anything you can do with asset allocation.
80% global equities (faith-based tilt) + 20% TIPS (LDI)
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Re: How are you preparing for inflation and higher interest rates?

Post by KlangFool »

Horton wrote: Wed Jun 16, 2021 4:01 pm
KlangFool wrote: Wed Jun 16, 2021 1:48 pm
Horton wrote: Wed Jun 16, 2021 1:35 pm It’s best to prepare for inflation when no one is worried about it. March 2020 would have been a great time. As contrary as it sounds, this is probably the best time to prep for deflation (because no one is worried about it).
Horton,

And, if someone is preparing for deflation, keeping a lot of CASH is the usual advice. What we see in the forum is folks are exchanging CASH to everything else. Aka, CASH is TRASH!

I know that I know nothing. Everything is possible. Hence, I am diversified across Stock, Bond, CASH, and physical Gold/Silver.

KlangFool
Having a plan for all situations and sticking to it is the best approach. And, if you have to do something, saving more (spending less) is probably better than anything you can do with asset allocation.
Correct!

KlangFool
30% VWENX | 16% VFWAX/VTIAX | 14.5% VTSAX | 19.5% VBTLX | 10% VSIAX/VTMSX/VSMAX | 10% VSIGX| 30% Wellington 50% 3-funds 20% Mini-Larry
Robot Monster
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Re: How are you preparing for inflation and higher interest rates?

Post by Robot Monster »

rockstar wrote: Tue Jun 15, 2021 6:48 pm I started a new position in TTT today. I'm shorting the long term bond. Depending on what the Fed does tomorrow, I might buy long dated calls in the money on TTT. This is a very small position about 1% of my total holdings.
Paid off today for you! I assume you know Michael Burry did the same thing.
article
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Re: How are you preparing for inflation and higher interest rates?

Post by Tigermoose »

ScaledWheel wrote: Wed Jun 16, 2021 1:55 pm This is a very beginner question, but the Fed indicated that it would do a rate hike in 2023. Does this mean that we can expect interest rates to remain around their current rates until the time in 2023 when they actually do the rate hike?

In reference to this thread, I'm considering refinancing a rental property but would like to spend the cash I would use to get to 80% LTV to instead do some maintenance a little ahead of time, and that would be fine if I could count on rates staying low for the next year.
Rates might not be raised until 2023, but the slow down of the Fed asset purchases could begin this year. More importantly, the market is now anticipating those two things, so you can expect the impact of those expectations to begin playing out starting today.
Institutions matter
rockstar
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Re: How are you preparing for inflation and higher interest rates?

Post by rockstar »

Robot Monster wrote: Wed Jun 16, 2021 5:32 pm
rockstar wrote: Tue Jun 15, 2021 6:48 pm I started a new position in TTT today. I'm shorting the long term bond. Depending on what the Fed does tomorrow, I might buy long dated calls in the money on TTT. This is a very small position about 1% of my total holdings.
Paid off today for you! I assume you know Michael Burry did the same thing.
article
It did okay. I haven't pulled the trigger on the options yet.

However, he's not the only one.

You also have Bill Gross shorting the long bond:

https://www.youtube.com/watch?v=c7W22JrWMk8

And Dimon over at JPM won't touch the long bond:

https://www.youtube.com/watch?v=kgl_zEu1VQo

Buffett isn't a fan either:

https://www.youtube.com/watch?v=nk8dtp5e0lI

No idea why anyone would pay for duration and earn less than inflation after taxes. Makes no sense to me. You take on interest rate risk without an adequate return.

Here's Burry's filings:

https://www.sec.gov/edgar/browse/?CIK=1649339

The only bonds I own now are I Bonds for my emergency fund, which was earning zero. And I'll still be less than inflation after taxes. I hold no other bonds. They're crazy to me.
remomnyc
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Re: How are you preparing for inflation and higher interest rates?

Post by remomnyc »

I bought a place and took out a 30-year fixed mortgage at 2.125%.
Zeno
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Re: How are you preparing for inflation and higher interest rates?

Post by Zeno »

Watching TV

Am I supposed to be doing something?
rockstar
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Re: How are you preparing for inflation and higher interest rates?

Post by rockstar »

WyomingFIRE wrote: Wed Jun 16, 2021 7:29 pm Watching TV

Am I supposed to be doing something?
I'm watching Devils if you're looking for something to watch.
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Re: How are you preparing for inflation and higher interest rates?

Post by Zeno »

rockstar wrote: Wed Jun 16, 2021 7:31 pm
WyomingFIRE wrote: Wed Jun 16, 2021 7:29 pm Watching TV

Am I supposed to be doing something?
I'm watching Devils if you're looking for something to watch.
I like you immediately

Former Caps’ Season Ticket holder here — and despite blowing wads of cash on Ted Leonsis’ retirement, I still made it to 47X

Most of my life was spent watching the Devils crush the Caps; same for the Penguins

My advice for a young investor? Become a hockey fan if you really want to experience soul-crushing disappointment over one’s existence on Planet Earth
Wedemeyer
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Re: How are you preparing for inflation and higher interest rates?

Post by Wedemeyer »

tvubpwcisla wrote: Fri Jun 11, 2021 7:42 pm I am curious what you are doing, if anything, to prepare for inflation and higher interest rates?

:beer
I'm watching waiting for Godot.
Robot Monster
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Re: How are you preparing for inflation and higher interest rates?

Post by Robot Monster »

rockstar wrote: Wed Jun 16, 2021 7:25 pm No idea why anyone would pay for duration and earn less than inflation after taxes. Makes no sense to me. You take on interest rate risk without an adequate return.
I'll take a stab at explaining it from my perspective. It's not that I want to be in bonds. It's that I don't want to be heavy into stocks because:
-- it's too much risk and uncertainty to stomach for me personally
-- I don't need to take all that risk. I can meet my financial goals easily with a TIPS heavy portfolio.

So, "cannot handle all that risk and don't need to," is basically it. Other things do make it harder imagining pulling the trigger on a lot more stocks, maybe things that shouldn't, like Burry saying the market is "Greatest Speculative Bubble of All Time in All Things. By two orders of magnitude."

I'm actually envious that you can handle so much stock volatility.
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Re: How are you preparing for inflation and higher interest rates?

Post by rockstar »

Robot Monster wrote: Wed Jun 16, 2021 8:06 pm
rockstar wrote: Wed Jun 16, 2021 7:25 pm No idea why anyone would pay for duration and earn less than inflation after taxes. Makes no sense to me. You take on interest rate risk without an adequate return.
I'll take a stab at explaining it from my perspective. It's not that I want to be in bonds. It's that I don't want to be heavy into stocks because:
-- it's too much risk and uncertainty to stomach for me personally
-- I don't need to take all that risk. I can meet my financial goals easily with a TIPS heavy portfolio.

So, "cannot handle all that risk and don't need to," is basically it. Other things do make it harder imagining pulling the trigger on a lot more stocks, maybe things that shouldn't, like Burry saying the market is "Greatest Speculative Bubble of All Time in All Things. By two orders of magnitude."

I'm actually envious that you can handle so much stock volatility.
Why do you think long duration bonds are less risky than equities?

If volatility bothers you, don't check your portfolio as often. My holdings of TQQQ and UPRO are going to get crushed tomorrow.

As for Burry, I look at what he does, not what he says. You can see his actual holdings in his filings. It's a lot better than reading about them in some news story.

I think of the world as more than just stocks and bonds. Right now, I'm building up real estate again.
Robot Monster
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Re: How are you preparing for inflation and higher interest rates?

Post by Robot Monster »

rockstar wrote: Wed Jun 16, 2021 8:34 pm
Robot Monster wrote: Wed Jun 16, 2021 8:06 pm
rockstar wrote: Wed Jun 16, 2021 7:25 pm No idea why anyone would pay for duration and earn less than inflation after taxes. Makes no sense to me. You take on interest rate risk without an adequate return.
I'll take a stab at explaining it from my perspective. It's not that I want to be in bonds. It's that I don't want to be heavy into stocks because:
-- it's too much risk and uncertainty to stomach for me personally
-- I don't need to take all that risk. I can meet my financial goals easily with a TIPS heavy portfolio.

So, "cannot handle all that risk and don't need to," is basically it. Other things do make it harder imagining pulling the trigger on a lot more stocks, maybe things that shouldn't, like Burry saying the market is "Greatest Speculative Bubble of All Time in All Things. By two orders of magnitude."

I'm actually envious that you can handle so much stock volatility.
Why do you think long duration bonds are less risky than equities?

If volatility bothers you, don't check your portfolio as often. My holdings of TQQQ and UPRO are going to get crushed tomorrow.

As for Burry, I look at what he does, not what he says. You can see his actual holdings in his filings. It's a lot better than reading about them in some news story.

I think of the world as more than just stocks and bonds. Right now, I'm building up real estate again.
I have 30yr TIPS, which I don't believe can crash in the way stocks can, and even if they do crash somewhat, they'll recover if you hold them to maturity. (Minus tax drag and slight negative yield.) There's much more certainty when it comes to TIPS. There's an actual guarantee (yes, of suckitude, perhaps).

Not checking my portfolio, or the market, is really good advice. Still would be a challenge.

VNQ is 100% of my Roth IRA, but had never considered it for my regular taxable account.
Last edited by Robot Monster on Wed Jun 16, 2021 10:27 pm, edited 1 time in total.
gubernaculum
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Re: How are you preparing for inflation and higher interest rates?

Post by gubernaculum »

50% VTSAX, 50% VITAX. 10K every month. Staying the course.
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Re: How are you preparing for inflation and higher interest rates?

Post by poker27 »

I bought IBonds today and will skip some typical purchase of bonds in my taxable. Very exciting stuff over here
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Re: How are you preparing for inflation and higher interest rates?

Post by Tingting1013 »

remomnyc wrote: Wed Jun 16, 2021 7:27 pm I bought a place and took out a 30-year fixed mortgage at 2.125%.
This Is The Way
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Re: How are you preparing for inflation and higher interest rates?

Post by MNSooner »

WyomingFIRE wrote: Wed Jun 16, 2021 7:38 pm
rockstar wrote: Wed Jun 16, 2021 7:31 pm
WyomingFIRE wrote: Wed Jun 16, 2021 7:29 pm Watching TV

Am I supposed to be doing something?
I'm watching Devils if you're looking for something to watch.

My advice for a young investor? Become a hockey fan if you really want to experience soul-crushing disappointment over one’s existence on Planet Earth
My advice to a hockey fan? Use the Boglehead method and like all teams equally. Buy a portfolio of tickets that includes one game to every team in the NHL. One of “your” teams will win every year!
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Re: How are you preparing for inflation and higher interest rates?

Post by max12377 »

I am going contrarian and not taking on mortgage debt. Continuing to rent and invest in stocks and bonds even though bonds return near nothing.

I think the money to be made in real estate has already been made and things will taper. I may buy down the road or may never buy but will not partake in the frenzy.

I fully admit I am just as likely to be wrong as right, but I have been debt averse my whole life so it works for me.
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