Investing during inflation
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Investing during inflation
If you thought inflation was was going to be significant in the next few years, how would you invest/structure your finances?
Some ideas I have are:
-Slow down mortgage payments
-possibly purchase a rental property with a big low interest mortgage?
-Very loosely considering bumping up purchases of durable goods (furniture/possibly a car)
-Very interested in seeing what sectors have the best REAL returns during inflationary periods if anyone has any good data. I have read that bank stocks / energy stocks do best, but have not seen detailed evidence.
Any other ideas please suggest.
Some ideas I have are:
-Slow down mortgage payments
-possibly purchase a rental property with a big low interest mortgage?
-Very loosely considering bumping up purchases of durable goods (furniture/possibly a car)
-Very interested in seeing what sectors have the best REAL returns during inflationary periods if anyone has any good data. I have read that bank stocks / energy stocks do best, but have not seen detailed evidence.
Any other ideas please suggest.
Re: Investing during inflation
I would probably save more and continue to put it in my portfolio. I started investing in the late 70s during a period of inflation that has yet to be repeated. That's basically what I did. My employer had a program where they would advance you the first six months of your raise. I plunked it into my equity funds (after finishing paying off my student loans). I had a policy of always adding my raises to savings/investment rather than spending more. Kept this policy until I retired.
Stay hydrated; don't sweat the small stuff
Re: Investing during inflation
I have to disagree with this idea, it is a good way to get ripped off by jumping on the frenzy to buy overpriced goods. Part of our power as consumers is to reduce spending in the face of inflation, not increase it. Instead of getting new furniture or a car, make what you have last longer. They are called durable goods for a reason.GordDownie wrote: ↑Thu Jun 24, 2021 5:58 am -Very loosely considering bumping up purchases of durable goods (furniture/possibly a car)
On the investing front I recommend stocks and I bonds.
70% Global Stocks / 30% Bonds
Re: Investing during inflation
I think the only meaningful action could be to take out a home loan or cashout/refi your current home. It doesn't go well for you if you end up under water in your debt, due to a housing market crash.
"PSX will always go up 20%, why invest in anything else?!" -Father-in-law early retired.
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Re: Investing during inflation
I guess a housing crash is a big risk.
What about refinancing an existing personal home and investing in TIPS? As you suggested, you would hold the home regardless, the additional risk is 0, and the arbitrage would make sense so long as inflation stays higher than mortgage rates (which I believe it has for a few months now).
What am I missing here?
Re: Investing during inflation
Nothing different. Taking action on what I think will be so is a great way to have to work until I drop.GordDownie wrote: ↑Thu Jun 24, 2021 5:58 am If you thought inflation was was going to be significant in the next few years, how would you invest/structure your finances?
Three times a month we buy a bunch of investments, mostly equities, on an automatic schedule. Good for the last twenty years, will be good for the next twenty.
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Re: Investing during inflation
I don't do things based on what I predict will be "significant during the next few years." I feel that inflation is always a risk, and have been slowly and undramatically preparing for it literally for decades. It has taken the following form:
a) We supplement our Social Security income with three income annuities. For one from TIAA-CREF I elected a "graded payment" option which pays out less initially but produces increasing payouts with time. Two of them are explicitly CPI-linked.
b) If we include series I savings bonds as "fixed income", what with that and the Vanguard TIPS fund, well over ⅔rds of our fixed income is explicitly CPI-linked. So, OK, ⅓ is vulnerable. Not perfect protection, but meaningful protection.
c) Stocks aren't perfect, either, but stock portion of my portfolio is reasonably likely to help in sustained periods of time.
And I have been tuning out perpetual alarmist talk about imminent hyperinflation for at least fifteen years.
a) We supplement our Social Security income with three income annuities. For one from TIAA-CREF I elected a "graded payment" option which pays out less initially but produces increasing payouts with time. Two of them are explicitly CPI-linked.
b) If we include series I savings bonds as "fixed income", what with that and the Vanguard TIPS fund, well over ⅔rds of our fixed income is explicitly CPI-linked. So, OK, ⅓ is vulnerable. Not perfect protection, but meaningful protection.
c) Stocks aren't perfect, either, but stock portion of my portfolio is reasonably likely to help in sustained periods of time.
And I have been tuning out perpetual alarmist talk about imminent hyperinflation for at least fifteen years.
Last edited by nisiprius on Thu Jun 24, 2021 8:21 pm, edited 4 times in total.
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Re: Investing during inflation
I think the best way to invest during inflation is to continue to invest in the asset allocation you chose in the first place.
If you think returns will be poor in the near future, find a way to save more money.
If you think returns will be poor in the near future, find a way to save more money.
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Re: Investing during inflation
I’d spend less on items hit hardest by inflation if I could and save more. And if those options weren’t feasible, I’d do nothing different (ie I’d keep putting money in my equities and bonds).
Re: Investing during inflation
At 70% stock allocation plus a mortgage on personal home, my portfolio is well protected for inflation. Its the depression/deflation due to nation debt that I fear.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939
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Re: Investing during inflation
I agree deflation is an equal or greater risk to the economy (but not necessarily to wealth) than inflation, but how can national debt lead to deflation? I would have thought the opposite was usually the case.
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Re: Investing during inflation
Why the bond allocation while also holding a mortgage?
This content is for entertainment purposes only
Re: Investing during inflation
1) 10% of bonds are my EF/I bonds.
2) 5% are loaned to myself via 401k loan. 10% of portfolio I shift based on P/E as per my IPS.
2) I chose not to prepay mortgage because I do not have enough to pay it off. My mortgage is twice of liquid assets. Because of that, I do not prefer paying it down. California is a non-recourse state and we live in earthquake county. This decision may change when my mortgage is 30% of liquid assets. I live in Bay area and my mortgage will be substantial amount on balance sheet for a longtime.
3) Even if I had enough liquid assets, I may not do it right away. All my liquid investments are in 401k and Roth ira. My taxable investments are entirely in real estate. I chose to structure this way with 401k, roth & MBR to reduce present & future tax liability in NII, capital gains etc.,
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939
Re: Investing during inflation
Roaring 20's is fueled by debt. The 30's are entirely diminishing demand spiral. From a central bank standpoint, inflation is one of the good ways to solve the effect of debt both at individual and government level. However they cannot always control the trajectory. Once the demand pull starts following debt fueled consumerism, it is very hard to control the monetary policy for excess. Time will tell.GordDownie wrote: ↑Thu Jun 24, 2021 2:10 pmI agree deflation is an equal or greater risk to the economy (but not necessarily to wealth) than inflation, but how can national debt lead to deflation? I would have thought the opposite was usually the case.
Personally I am rooting for 3-5% inflation as a better devil. I think there are good 5-10 years before we can even see these issues out in public. Half of the boomer generation is expected to retire by late 2020's. This will add the fiscal pressure on social security and Medicare. Combined with shrinking tax base, automation it will be interesting challenges to solve for this decade just like something else was in 1930s, early 50s, 1970s.
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939
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Re: Investing during inflation
Regarding bank stocks, I believe they do well during inflation if rates rise in response. If inflation surprisingly and unexpectedly bubbles up the Fed could raise rates above inflation. On the other hand, if the Fed decides to keep rates suppressed even in the face of inflation, bank stocks might not do especially well. Please correct me if I got any of that wrong.GordDownie wrote: ↑Thu Jun 24, 2021 5:58 am I have read that bank stocks / energy stocks do best, but have not seen detailed evidence.
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Re: Investing during inflation
Inflation is a persistent risk. We don’t modify our portfolio based on any short term expectations. I always think my crystal ball is a little foggy.
As early retirees with little to no residual human capital, inflation risks are a significant threat to our retirement security.
We have one COLA linked pension and do the following to further manage inflation risk:
- maintain significant stock allocation (60-65%)
- maintain significant allocation to inflation protected securities (TIPs and I bonds)
- intend to maximize Social Security benefit
- probably buy one or more SPIAs or DIAs as we get older
As early retirees with little to no residual human capital, inflation risks are a significant threat to our retirement security.
We have one COLA linked pension and do the following to further manage inflation risk:
- maintain significant stock allocation (60-65%)
- maintain significant allocation to inflation protected securities (TIPs and I bonds)
- intend to maximize Social Security benefit
- probably buy one or more SPIAs or DIAs as we get older
“Doing nothing is better than being busy doing nothing.” – Lao Tzu
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Re: Investing during inflation
I have to think that the incredible home price rise has been a massive gain for banks as well. Any foreclosures likely have significant equity so minimal losses. Also, much bigger loans, and as people trade up they have the ability to put more down (infact I read that the downpayment percentage has reached a record high despite the run up in prices), so the potential for loss seems to be shrinking as home prices go up.Robot Monster wrote: ↑Fri Jun 25, 2021 9:08 amRegarding bank stocks, I believe they do well during inflation if rates rise in response. If inflation surprisingly and unexpectedly bubbles up the Fed could raise rates above inflation. On the other hand, if the Fed decides to keep rates suppressed even in the face of inflation, bank stocks might not do especially well. Please correct me if I got any of that wrong.GordDownie wrote: ↑Thu Jun 24, 2021 5:58 am I have read that bank stocks / energy stocks do best, but have not seen detailed evidence.
If rates are kept below inflation though, I don't see how they make money on this. It will be interesting to see if bank mortgage rates decouple from treasury rates. Does anyone have any detailed information about how banks combat high inflation and low treasury rates (ie the environment we have been in for a few months now).
It seems to me like you could make a significant gain at the banks expense by taking out a 2.5% mortgage when inflation is running at 5.2%; why are banks not raising rates here for loans? Even for short term loans there is an arbitrage to play here.
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Re: Investing during inflation
Very short term inflation for very specific items (e.g. lumber, which has started coming down, transportation, etc) does not represent a very strong case for arbitrage IMHO. You’re trying to time the market and betting against bankers, hedgefundies, and other market participants is a losing game.GordDownie wrote: ↑Fri Jun 25, 2021 9:40 amI have to think that the incredible home price rise has been a massive gain for banks as well. Any foreclosures likely have significant equity so minimal losses. Also, much bigger loans, and as people trade up they have the ability to put more down (infact I read that the downpayment percentage has reached a record high despite the run up in prices), so the potential for loss seems to be shrinking as home prices go up.Robot Monster wrote: ↑Fri Jun 25, 2021 9:08 amRegarding bank stocks, I believe they do well during inflation if rates rise in response. If inflation surprisingly and unexpectedly bubbles up the Fed could raise rates above inflation. On the other hand, if the Fed decides to keep rates suppressed even in the face of inflation, bank stocks might not do especially well. Please correct me if I got any of that wrong.GordDownie wrote: ↑Thu Jun 24, 2021 5:58 am I have read that bank stocks / energy stocks do best, but have not seen detailed evidence.
If rates are kept below inflation though, I don't see how they make money on this. It will be interesting to see if bank mortgage rates decouple from treasury rates. Does anyone have any detailed information about how banks combat high inflation and low treasury rates (ie the environment we have been in for a few months now).
It seems to me like you could make a significant gain at the banks expense by taking out a 2.5% mortgage when inflation is running at 5.2%; why are banks not raising rates here for loans? Even for short term loans there is an arbitrage to play here.
“Doing nothing is better than being busy doing nothing.” – Lao Tzu
Re: Investing during inflation
I wouldn't change a thing. Inflation risk always exists, and I've been reading about impending inflation doom for years now. So yeah, it may go up some (and then again it may not) but who's to say when, how much and for how long? Unless it becomes a reality and it gets into the levels it was in the 70's and 80's, then I'm not concerned. Important to note that I'm still in the accumulation phase.
If I owned my home, I'd probably make sure that I refinance whenever the rates go down, and keep the mortgage. Which is always a good idea, nflation or not.
But I don't own my home, and where I'm living, housing is way too expensive. I'm more concerned about housing prices going down than I am about inflation. I'm not buying a $800k, 1,100 sqf, 40 years old townhome, even if I could get a mortgage at 2.5%.
If I owned my home, I'd probably make sure that I refinance whenever the rates go down, and keep the mortgage. Which is always a good idea, nflation or not.
But I don't own my home, and where I'm living, housing is way too expensive. I'm more concerned about housing prices going down than I am about inflation. I'm not buying a $800k, 1,100 sqf, 40 years old townhome, even if I could get a mortgage at 2.5%.
Last edited by pasadena on Fri Jun 25, 2021 10:18 am, edited 1 time in total.
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Re: Investing during inflation
Actually inflation for working homeowners isn’t that bad. During the early 80’s my grandfather purchased a number of 15% to 21% CD’s ! Further, anything under 4% for banks is a difficult environment, especially with the 2009 FDIC updated investment banking rules. I’ll guess we’ll see the return of 5% prime or so - also with the current immigration policies, it helps boost SS for the immediate future.
My .02
My .02
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Re: Investing during inflation
I think the problem for homeowners today is that significant interest rate increases could potentially lead to large declines in home values.RoadagentMN wrote: ↑Fri Jun 25, 2021 10:14 am Actually inflation for working homeowners isn’t that bad. During the early 80’s my grandfather purchased a number of 15% to 21% CD’s ! Further, anything under 4% for banks is a difficult environment, especially with the 2009 FDIC updated investment banking rules. I’ll guess we’ll see the return of 5% prime or so - also with the current immigration policies, it helps boost SS for the immediate future.
My .02
I think rising rates would be very good for anyone looking to get into the housing market today, but not so much for current home owners.
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Re: Investing during inflation
This is a good read
http://warrenbuffettoninvestment.com/ho ... -investor/
"The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislatures. The inflation tax has a fantastic ability to simply consume capital. It makes no difference to a widow with her savings in a 5% passbook account whether she pays 100% income tax on her interest income during a period of zero inflation, or pays no income taxes during years of 5% inflation. Either way, she is “taxed” in a manner that leaves her no real income whatsoever. Any money she spends comes right out of capital. She would find outrageous a 120% income tax, but doesn’t seem to notice that 6% inflation is the economic equivalent."
http://warrenbuffettoninvestment.com/ho ... -investor/
"The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislatures. The inflation tax has a fantastic ability to simply consume capital. It makes no difference to a widow with her savings in a 5% passbook account whether she pays 100% income tax on her interest income during a period of zero inflation, or pays no income taxes during years of 5% inflation. Either way, she is “taxed” in a manner that leaves her no real income whatsoever. Any money she spends comes right out of capital. She would find outrageous a 120% income tax, but doesn’t seem to notice that 6% inflation is the economic equivalent."
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Re: Investing during inflation
The market expectation for the inflation for the next 5 years is around 2.5% which is only around 0.5% higher than their target.GordDownie wrote: ↑Thu Jun 24, 2021 5:58 am If you thought inflation was was going to be significant in the next few years, how would you invest/structure your finances?
https://fred.stlouisfed.org/series/T5YIE
There is always some inflation risk, don't let "the noise" impact your investment plans.
You should always have some inflation protection in your portfolio, no matter what:Some ideas I have are:
-Slow down mortgage payments
-possibly purchase a rental property with a big low interest mortgage?
-Very loosely considering bumping up purchases of durable goods (furniture/possibly a car)
-Very interested in seeing what sectors have the best REAL returns during inflationary periods if anyone has any good data. I have read that bank stocks / energy stocks do best, but have not seen detailed evidence.
- Stocks are good (not perfect).
- I-bonds (or TIPS) are good (not perfect).
- Real estate is good (not perfect).
- Gold can be considered as an insurance policy against hyperinflation (but otherwise is controversial)
25% VTI | 25% VXUS | 12.5% AVUV | 10% AVDV | 2.5% VWO | 25% BND/SCHR/SCHP
Re: Investing during inflation
I am also an advocate for refinancing your home for 30 years as an inflation hedge which also provides you with options.
The rest is simply guessing and hoping things play out the way you hoped. I did that earlier on in my investing life (30s) and finally realized it wasn't worth it (e.g. I am not good at it) and just keep "making the donuts" of investing according to my AA and risk tolerance.
The rest is simply guessing and hoping things play out the way you hoped. I did that earlier on in my investing life (30s) and finally realized it wasn't worth it (e.g. I am not good at it) and just keep "making the donuts" of investing according to my AA and risk tolerance.
Re: Investing during inflation
Here is a link to a 2019 Vanguard article and hedging against unexpected inflation
https://institutional.vanguard.com/VGAp ... tiesSTTIPS
click the white paper link
https://institutional.vanguard.com/VGAp ... tiesSTTIPS
click the white paper link
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Re: Investing during inflation
jimkinny wrote: ↑Thu Jul 01, 2021 7:26 am Here is a link to a 2019 Vanguard article and hedging against unexpected inflation
https://institutional.vanguard.com/VGAp ... tiesSTTIPS
click the white paper link
I think that is an important distinction to make is;
(a) Hedging against future, unexpected inflation, is very different than
(b) investing during an environment of ongoing high inflation
The key difference between the two being when interest rates and fed tightening takes place
I think we are in a very unique time from a macro perspective where inflation has picked up significantly (over 5% recently), but we also have no action from the Fed so:
-Mortgages are still cheap
-Bonds still yield little
-Stocks are still attractive
I think any action right now is a bet on one of three scenarios:
(i) inflation continues to be elevated and the fed takes no action (take out a loan, buy hard assets, stocks probably do okay)
(ii) inflation tapers down quickly and the fed was right (probably nothing actionable)
(iii) inflation accelerates and the fed tightens (pay off your mortgage now, stocks probably get crushed, existing bonds get crushed)
It is very interesting to see such different perspectives on what will happen, in what you would think should be very predictable - obviously it is not though!
Re: Investing during inflation
If you thought the current inflation rate was going to remain at the same levels as May then you are actually talking about unexpected inflation. The Vanguard paper applies to your question. The expected inflation rate in the next few years is not 5% but closer to 2.5-3.0%.
Re: Investing during inflation
Banks don't hold the mortgage they originate. It is sold to investors as mortgage backed securities. The bank collects it's fees off the origination and servicing.GordDownie wrote: ↑Fri Jun 25, 2021 9:40 am It seems to me like you could make a significant gain at the banks expense by taking out a 2.5% mortgage when inflation is running at 5.2%; why are banks not raising rates here for loans? Even for short term loans there is an arbitrage to play here.
As for what you're missing regarding a cash out refi, the interest rates are much higher. You're better off getting a new home and selling your old one if you want to play interest rate arbitrage.
Re: Investing during inflation
Be careful about this. This at a mass level can lead to stagflation which is worse.z3r0c00l wrote: ↑Thu Jun 24, 2021 7:37 amI have to disagree with this idea, it is a good way to get ripped off by jumping on the frenzy to buy overpriced goods. Part of our power as consumers is to reduce spending in the face of inflation, not increase it. Instead of getting new furniture or a car, make what you have last longer. They are called durable goods for a reason.GordDownie wrote: ↑Thu Jun 24, 2021 5:58 am -Very loosely considering bumping up purchases of durable goods (furniture/possibly a car)
On the investing front I recommend stocks and I bonds.
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Re: Investing during inflation
That early 1980's inflation may not have been "that bad" for working people who *already* had purchased a home, and especially if it was purchased some time ago... or there was no longer a mortgage.RoadagentMN wrote: ↑Fri Jun 25, 2021 10:14 am Actually inflation for working homeowners isn’t that bad. During the early 80’s my grandfather purchased a number of 15% to 21% CD’s ! Further, anything under 4% for banks is a difficult environment, especially with the 2009 FDIC updated investment banking rules. I’ll guess we’ll see the return of 5% prime or so - also with the current immigration policies, it helps boost SS for the immediate future.
My .02
However, for those working people who were trying to BUY a home...
... the mortgage rate in spring of 1980 went to 17.5%
OTOH, what little cash I had left after the purchase of my first home went into the relatively new money market account at 18%.
Neither of those rates lasted very long.
I relatively soon refinanced to something like 13%, and at the time, I thought that was absolutely terrific!
RM
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Re: Investing during inflation
What if we don't have a mortgage because we don't own a home? Is there a good hedge available for those scenarios?
On the other hand, housing prices should go down if interest rates rise, since people buy homes based on their monthly payment. That would be a good thing.
On the other hand, housing prices should go down if interest rates rise, since people buy homes based on their monthly payment. That would be a good thing.
Re: Investing during inflation
This is a often asked question, and it is the wrong question. The relationship between investment returns are inflation are pretty weak.GordDownie wrote: ↑Thu Jun 24, 2021 5:58 am -Very interested in seeing what sectors have the best REAL returns during inflationary periods if anyone has any good data. I have read that bank stocks / energy stocks do best, but have not seen detailed evidence.
The problem is with spurious correlations. This is when you have a correlation between 2 variables (investment returns and inflation), but it is being caused by a 3rd variable.
Inflation in he 70s to was due to monetary policy and oil shocks. In the 90s it was because the economy was expanding so fast that there were shortages of key materials. Fast food places were closing down because they couldn't find enough labor to staff the kitchens.
So the key question is what you think will cause inflation.
Former brokerage operations & mutual fund accountant. I hate risk, which is why I study and embrace it.
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Re: Investing during inflation
I read an opinion recently which speculated that bond rates will largely remain below the rate of inflation for an extended period of time.
The rational used was that the Fed is putting downward pressure on rates by purchasing large quantities of bonds, and also a huge demographic anomaly of baby-boomers retiring and rotating into bonds as part of asset allocation strategies, regardless of the attractiveness of the yields
I thought that the demographic part was interesting, and something I had not seen mentioned before. I do think its a powerful force, and could persist for a decade or longer.
The rational used was that the Fed is putting downward pressure on rates by purchasing large quantities of bonds, and also a huge demographic anomaly of baby-boomers retiring and rotating into bonds as part of asset allocation strategies, regardless of the attractiveness of the yields
I thought that the demographic part was interesting, and something I had not seen mentioned before. I do think its a powerful force, and could persist for a decade or longer.
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Re: Investing during inflation
Bogleheads:
U.S. Inflation and returns for stocks and bonds in The Three-Fund Portfolio:
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
The
* 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
U.S. Inflation and returns for stocks and bonds in The Three-Fund Portfolio:
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
The
* 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: "The returns of market sectors, of managed investment portfolios, and even of the market itself mysteriously return, over time, to norms of one kind or another."
"Simplicity is the master key to financial success." -- Jack Bogle
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Re: Investing during inflation
This is really good info.Taylor Larimore wrote: ↑Fri Jul 02, 2021 1:00 pm Bogleheads:
U.S. Inflation and returns for stocks and bonds in The Three-Fund Portfolio:
It's very applicable for tax sheltered accounts, and very reassuring in that context. In taxable accounts it is of course less applicable, but I would think less people are affected in that way.
- BuyAndHoldOn
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Re: Investing during inflation
I'm sure this has been stated already, but it is difficult to predict that inflation will be high or higher for a prolonged period, even though it is a risk.
I haven't changed anything in the current environment due to inflation - but I haven't been allocating to the "safe", lower yielding bonds....that is purely due to the low interest rates and my desire to market time / risk-appetite, etc.
I haven't changed anything in the current environment due to inflation - but I haven't been allocating to the "safe", lower yielding bonds....that is purely due to the low interest rates and my desire to market time / risk-appetite, etc.
I’d trade it all for a little more | -C Montgomery Burns
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Re: Investing during inflation
I’m ambivalent on whether significant inflation will stick around post reopening. And, in the short term, there aren’t many places to hide from high inflation (and high rates).
But there is no reason not to keep nominal debt investments in short duration instruments as a hedge and at least be able to redeploy without nominal losses once things reset.
But there is no reason not to keep nominal debt investments in short duration instruments as a hedge and at least be able to redeploy without nominal losses once things reset.
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Re: Investing during inflation
Basically, the less assets you own the worse it is.Whakamole wrote: ↑Fri Jul 02, 2021 9:21 am What if we don't have a mortgage because we don't own a home? Is there a good hedge available for those scenarios?
On the other hand, housing prices should go down if interest rates rise, since people buy homes based on their monthly payment. That would be a good thing.
Re: Investing during inflation
Get fleeced on purchases I don't really need in order to boost the economy? No thanks.GFD45 wrote: ↑Fri Jul 02, 2021 8:24 amBe careful about this. This at a mass level can lead to stagflation which is worse.z3r0c00l wrote: ↑Thu Jun 24, 2021 7:37 amI have to disagree with this idea, it is a good way to get ripped off by jumping on the frenzy to buy overpriced goods. Part of our power as consumers is to reduce spending in the face of inflation, not increase it. Instead of getting new furniture or a car, make what you have last longer. They are called durable goods for a reason.GordDownie wrote: ↑Thu Jun 24, 2021 5:58 am -Very loosely considering bumping up purchases of durable goods (furniture/possibly a car)
On the investing front I recommend stocks and I bonds.
70% Global Stocks / 30% Bonds