Best inflation hedge besides gold, real estate, stocks, and crypto

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GoneOnTilt
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by GoneOnTilt »

Da5id wrote: Sat Jul 24, 2021 8:06 am
GoneOnTilt wrote: Sat Jul 24, 2021 7:38 amCash.
Cash loses value by the amount of inflation, guaranteed. In what way is it possibly good?
From 1913-1920, inflation has averaged 3.10%.

From 1928-1920, cash has earned 3.3%, keeping up with, and indeed slightly beating inflation.

Therefore, cash has proven to be a solid hedge against inflation over time.

https://inflationdata.com/Inflation/Inf ... lation.asp

https://awealthofcommonsense.com/2021/0 ... 1928-2020/

Nisiprius and others have also shown many times how cash has kept up with inflation over the long term.

EDIT: I know the above decades don't quite match up, but if you exclude the 9.8% inflation from 1913-1919, cash would have performed even better vs inflation over time.
Da5id
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by Da5id »

GoneOnTilt wrote: Sat Jul 24, 2021 8:20 am
Da5id wrote: Sat Jul 24, 2021 8:06 am
GoneOnTilt wrote: Sat Jul 24, 2021 7:38 amCash.
Cash loses value by the amount of inflation, guaranteed. In what way is it possibly good?
From 1913-1920, inflation has averaged 3.10%.

From 1928-1920, cash has earned 3.3%, keeping up with, and indeed slightly beating inflation.

Therefore, cash has proven to be a solid hedge against inflation over time.

https://inflationdata.com/Inflation/Inf ... lation.asp

https://awealthofcommonsense.com/2021/0 ... 1928-2020/

Nisiprius and others have also shown many times how cash has kept up with inflation over the long term.
Stocks and bonds have returned well over 3.3% over that period. That doesn't imply that they do particularly well specifically during inflationary periods, just over the long term. Cash can do OK in that t-bills will adjust upwards during inflation and the duration of them is only 3 months. But does it really "hedge" against inflation in a meaningful way the way some claim gold does?
GoneOnTilt
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by GoneOnTilt »

Da5id wrote: Sat Jul 24, 2021 8:35 am
GoneOnTilt wrote: Sat Jul 24, 2021 8:20 am
Da5id wrote: Sat Jul 24, 2021 8:06 am
GoneOnTilt wrote: Sat Jul 24, 2021 7:38 amCash.
Cash loses value by the amount of inflation, guaranteed. In what way is it possibly good?
From 1913-1920, inflation has averaged 3.10%.

From 1928-1920, cash has earned 3.3%, keeping up with, and indeed slightly beating inflation.

Therefore, cash has proven to be a solid hedge against inflation over time.

https://inflationdata.com/Inflation/Inf ... lation.asp

https://awealthofcommonsense.com/2021/0 ... 1928-2020/

Nisiprius and others have also shown many times how cash has kept up with inflation over the long term.
Stocks and bonds have returned well over 3.3% over that period. That doesn't imply that they do particularly well specifically during inflationary periods, just over the long term. Cash can do OK in that t-bills will adjust upwards during inflation and the duration of them is only 3 months. But does it really "hedge" against inflation in a meaningful way the way some claim gold does?
The OP's question was "What are you currently holding besides gold, real estate, stocks, and crypto?"

My answer was cash.

This diverts from the OPs question, but it seems like gold is a lousy hedge against inflation. It's highly volatile, and its correlation to inflation has only been 0.16 over the last 50 years. So its volatility makes it really time-period dependent as to whether it works as a hedge against inflation for someone. You don't get a lot of reward for the risk, it seems to me. I really don't know much about it, but on the face of it it's not something I want to invest in. But again, my knowledge is limited on this. I could be wrong. But I don't like to invest in things I don't understand.

But back to my original point, I was just answering the OPs question as to what other things people were holding to hedge against inflation. About 5% of my (modest) portfolio is cash right now. I am five years from retirement.
Unwinder
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by Unwinder »

SemiRetire wrote: Mon Jul 19, 2021 11:25 pm You have hit all the main ones.

Bullets, Whiskey, and other similar type commodities besides gold.

I mean in say Argentina Venezuela people reportedly buy cars to store wealth in really high inflation areas.

I am not doing any of those. You cant even buy ammo now probably lol.
"Bullets, Whiskey, and other similar type commodities besides gold.", all of these have done incredibly well as inflation hedges since Jan 1, 2020 and I think will continue to do well. My friend is a bourbon enthusiast/collector and it is crazy the prices people will pay for specialty bourbons. I think these same is true for other whiskies like scotch although I don't know that market as well.
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bobcat2
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by bobcat2 »

bluegill wrote: Sat Jul 24, 2021 3:55 am Some people have mentioned buying a home with 30 year mortgage as an inflation hedge. The inflation of a home value doesn't do me any good since I plan to always live in a home. My heirs would benefit, but it would not help me personally at all.
Owning your home is an inflation hedge because the alternative is renting and rents rise with inflation. You don't want to be renting during a period of high inflation. I know because I was renting in the 1970s while my parents owned. It was easy to see the difference owning vs. renting made.

BobK
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Da5id
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by Da5id »

GoneOnTilt wrote: Sat Jul 24, 2021 9:06 am The OP's question was "What are you currently holding besides gold, real estate, stocks, and crypto?"

My answer was cash.

This diverts from the OPs question, but it seems like gold is a lousy hedge against inflation. It's highly volatile, and its correlation to inflation has only been 0.16 over the last 50 years. So its volatility makes it really time-period dependent as to whether it works as a hedge against inflation for someone. You don't get a lot of reward for the risk, it seems to me. I really don't know much about it, but on the face of it it's not something I want to invest in. But again, my knowledge is limited on this. I could be wrong. But I don't like to invest in things I don't understand.

But back to my original point, I was just answering the OPs question as to what other things people were holding to hedge against inflation. About 5% of my (modest) portfolio is cash right now. I am five years from retirement.
Is hedging against inflation the *reason* you hold cash, or are you just noting the fact that it ~keeps up with inflation? Though the fact that it keeps up historically is currently not looking great with inflation spiking and 3 month T-bills paying 0.05%.

While I own a number of things (real estate, stocks) that may in the long term do fine against inflation, TIPs and I-bonds (starting to buy them again) are the only things I have specifically for protection against inflation.
GoneOnTilt
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by GoneOnTilt »

Da5id wrote: Sat Jul 24, 2021 9:22 am
GoneOnTilt wrote: Sat Jul 24, 2021 9:06 am The OP's question was "What are you currently holding besides gold, real estate, stocks, and crypto?"

My answer was cash.

This diverts from the OPs question, but it seems like gold is a lousy hedge against inflation. It's highly volatile, and its correlation to inflation has only been 0.16 over the last 50 years. So its volatility makes it really time-period dependent as to whether it works as a hedge against inflation for someone. You don't get a lot of reward for the risk, it seems to me. I really don't know much about it, but on the face of it it's not something I want to invest in. But again, my knowledge is limited on this. I could be wrong. But I don't like to invest in things I don't understand.

But back to my original point, I was just answering the OPs question as to what other things people were holding to hedge against inflation. About 5% of my (modest) portfolio is cash right now. I am five years from retirement.
Is hedging against inflation the *reason* you hold cash, or are you just noting the fact that it ~keeps up with inflation? Though the fact that it keeps up historically is currently not looking great with inflation spiking and 3 month T-bills paying 0.05%.

While I own a number of things (real estate, stocks) that may in the long term do fine against inflation, TIPs and I-bonds (starting to buy them again) are the only things I have specifically for protection against inflation.
The reasons I hold cash are multifactorial. That it has historically hedged against inflation is one of those reasons.

Regarding what T-bills are currently paying, trying to predict what interest rates will in the future do is impossible, so I'm not going to change my asset allocation based on any "feeling" about what interest rates (or stock valuations, or inflation, or whatever) might do.

I know that I know nothing.

Of course, this all digresses from OPs question. But that's okay. :happy
Da5id
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by Da5id »

GoneOnTilt wrote: Sat Jul 24, 2021 9:57 am Regarding what T-bills are currently paying, trying to predict what interest rates will in the future do is impossible, so I'm not going to change my asset allocation based on any "feeling" about what interest rates (or stock valuations, or inflation, or whatever) might do.
I'm not making long term predictions either, and don't change my allocation in response to predictions the uncertainties of future stock market or bond prospects. Just observing that today's 0.05% t-bills are unlikely to beat inflation in the near term or be effective hedges against inflation in the near term.
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quantAndHold
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by quantAndHold »

bluegill wrote: Sat Jul 24, 2021 3:55 am Some people have mentioned buying a home with 30 year mortgage as an inflation hedge. The inflation of a home value doesn't do me any good since I plan to always live in a home. My heirs would benefit, but it would not help me personally at all.
You misunderstand. You’re protecting yourself against increases in rent and mortgage costs. You buy a house today for $200k, with a 30 year mortgage, with payments of $1000/month. That payment will be $1000/month for the next 30 years. If you were renting a place for $1000, even at 2% inflation, in 30 years, your rent payment would be $1800.

If, after say 20 years, you sell the house and move, that $200k house will be worth $300k, and you’ll probably have $200k in equity (after 20 years, your loan is about half paid off). You can take that $200k, and make a down payment on another house, thus preserving your low housing costs. If you rent, you take $0 with you, and are just at the mercy of what current rental prices are.
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quantAndHold
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by quantAndHold »

EnjoyIt wrote: Fri Jul 23, 2021 10:03 am For those who buy things like TIPS and ibonds, how much of your portfolio are you allocating to those funds?
If it is something less than 10%, I just don't see how such a small allocation will accomplish any real value when the high inflation poop hits the fan.
TIPS and IBonds are only about 10% of my portfolio, but that’s 1/3 of the fixed income part of my 70/30 portfolio. Clearly if the only risk I was worried about was inflation, I would have more, but as Bogleheads, we diversify because there multiple risks we’re trying to mitigate. In periods of low inflation, interest rate risk is a bigger deal on the fixed income portion of the portfolio. But right now, I’m very happy to have the TIPS and IBonds.
GoneOnTilt
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by GoneOnTilt »

Da5id wrote: Sat Jul 24, 2021 10:05 am
GoneOnTilt wrote: Sat Jul 24, 2021 9:57 am Regarding what T-bills are currently paying, trying to predict what interest rates will in the future do is impossible, so I'm not going to change my asset allocation based on any "feeling" about what interest rates (or stock valuations, or inflation, or whatever) might do.
I'm not making long term predictions either, and don't change my allocation in response to predictions the uncertainties of future stock market or bond prospects. Just observing that today's 0.05% t-bills are unlikely to beat inflation in the near term or be effective hedges against inflation in the near term.
Okay, let me confess. I've probably ended up putting more money into my VASIX holding (Vanguard LifeStrategy Income Fund, 20/80 allocation with a 1.58% SEC yield) lately, than I might have normally put into my MMF. Still depositing cash, but if I'm honest I've been increasing my VASIX deposits on payday. I have always had a love-hate relationship with cash. :happy
JackoC
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by JackoC »

bobcat2 wrote: Tue Jul 20, 2021 10:42 am Inflation hedges my wife and I use are Social Security, CPI indexed pension, TIPS (bonds and etfs), I-bonds, and a small holding in the TSP G Fund.

Stocks are not an inflation hedge. The correlation between stocks and inflation is approximately zero. You cannot hedge inflation with an asset that has zero correlation to inflation. (You can't hedge anything with an asset that has zero correlation to the thing you are trying to hedge.) While stocks don't perform as poorly as nominal bonds during periods of high inflation, stocks typically don't perform well when inflation is high. The two decades of very high inflation in the 20th century (1910-19 & 1970-79) were both decades when the real return on US stocks was negative.

BobK
Yeah, thinking of stocks as an inflation hedge is particularly dangerous given the over-love of stocks on this forum already IMO. "Let's add 'inflation hedge' to all the other glories of The Ultimate Asset, stocks!". Not really, as you say and demonstrate further in later posts. Stocks are a less bad thing to be in than long nominal bonds when inflation greatly increases, hardly the same as 'a hedge'. High inflation tends to mean more uncertain inflation, which shows up as higher risk premium in the discount rate applied to earnings. Many people seem to stop at the reasonable inference that expected real profits wouldn't change a lot with higher inflation. But even if that's true (not entirely obvious) it leaves out the likelihood of a higher real risky discount rate applied by the market to those profits to get the stock PV.

One reason stocks have done so well in the relatively recent past is continual solidification of low inflation expectations, gradual wringing out of risk premia which entered stocks prices during mid 1960's to early 1980's inflation. From where we are now, the stock market will tank if inflation expectations again become unmoored. That's actually IMO a very easy prediction to make, but note it's *IF* inflation expectations become unmoored. That's a big 'if'. Although, hedges are for 'ifs'. If the argument is 'but that can't happen anymore', perhaps so, but it's an argument against hedging, not a good argument that stocks *are* a hedge.

A real *hedge* against inflation also has to be able act in a way 'bigger than itself' unless it's also something you'd invest much or all your money in. So even TIPS don't do that, they only (partly*) protect the money you put in TIPS, and at distinctly negative real pre tax yield are understandably unpopular as a major allocation for investors seeking lots of risk hoping to generate long term wealth, as is typical here. A real hedge would be a stand alone inflation swap for notional amount of whole portfolio size. It would practically require a pretty large portfolio and probably going through 'wealth management' fees. But in theory: $20mil portfolio, heavily invested in stocks, hedge against serious inflation with a $20mil notional size inflation swap struck at probably 2.something% for 10 yrs. You get paid for the difference between realized inflation and the strike on that whole amount if realized inflation is higher, you pay the difference if it's lower. You also need to reach some arrangement to collateralize either side's exposure as the market to market value of the swap changes, but the amount you'd ever 'invest' in collateral is a likely small % of $20mil. *That* is an actual, direct hedge. Admittedly, it's of no practical relevance** to most people here.

*higher inflation also tends to go with higher real rates, so TIPS will also tend to lose real market value if inflation spikes, they are another thing like stocks which won't do as badly as nominal bonds, but are less than a fully satisfactory hedge even for just the amount of money you put into them.
**the ETF (s ?) which use inflation swaps are eg. corporate bonds+inflation swap, swap notional size is still only the amount you put in the fund.
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by corn18 »

The folks that had a 7.5% 30 year mortgage in 1974 made out like bandits during the next decade of high inflation. Then they could have refinanced to follow rates down. That's a high quality inflation hedge, IMHO.

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HanSolo
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by HanSolo »

Aged Maduro wrote: Tue Jul 20, 2021 12:49 pm Gold, quite frankly, is a lousy investment. It is expensive to buy and sell, difficult to store and does not create an income stream. In an apocolyptic scenario it would also be quite dangerous once it becomes known that you have any.
Reality is not always so black-and-white. Sometimes there are scenarios that are not quite total apocalypse. Consider that gold may have been a useful holding in Taiwan during the hyperinflation of the Old Taiwan Dollar. Although there was a war going on, society was not in a Mad Max scenario at the time, as far as I'm aware.

Rather than considering total apocalypse, my question is, how far down the slippery slope can we go before things get uncomfortable? The federal debt, for example, may be sustainable at it's current level (as a percentage of GDP), or even twice the current level, but I wonder what happens when it's 10, 20, or 100 times higher.
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EnjoyIt
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by EnjoyIt »

quantAndHold wrote: Sat Jul 24, 2021 10:33 am
EnjoyIt wrote: Fri Jul 23, 2021 10:03 am For those who buy things like TIPS and ibonds, how much of your portfolio are you allocating to those funds?
If it is something less than 10%, I just don't see how such a small allocation will accomplish any real value when the high inflation poop hits the fan.
TIPS and IBonds are only about 10% of my portfolio, but that’s 1/3 of the fixed income part of my 70/30 portfolio. Clearly if the only risk I was worried about was inflation, I would have more, but as Bogleheads, we diversify because there multiple risks we’re trying to mitigate. In periods of low inflation, interest rate risk is a bigger deal on the fixed income portion of the portfolio. But right now, I’m very happy to have the TIPS and IBonds.
This is what I don’t get. How does a 10% holding in TIPS really add anything of value. If inflation goes through the roof and everything goes down dramatically, how does 10% of your portfolio retaining its value provide any real benefit? I can see 25% to 50% adding something substantial, but 10% makes so little difference. What am I missing here?
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AlwaysLearningMore
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by AlwaysLearningMore »

tomsense76 wrote: Thu Jul 22, 2021 4:12 pm I don't think anyone debates that stocks do poorly in an inflationary environment. The usual argument for stocks as an inflation hedge is that in the long run income streams of the underlying business will adjust to inflation.

AFAICT everyone here is saying the same thing in this regard (including Buffet).
He uses one of his own investments as an example: “If you own the Coca-Cola company, you will get a given portion of people’s labor 20 years from now and 50 years from now for your product and it doesn’t make any difference what’s happened to the price level,” because people will still pay for the products they like.
https://www.cnbc.com/2021/07/16/warren- ... ation.html
Are equities truly a "hedge" if they don't rise during an inflationary environment :?: Is having to wait possibly years (see 1970's inflation and US stock market performance) for stock prices to [hopefully] rise meet the needs of investors dealing with high inflation in real time :?: Or are equities simply an asset class that tends to rise over time (sometimes with long gaps between strong performance), and thus a thin reed on which to rest while dealing with inflation :?:
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by AlwaysLearningMore »

JackoC wrote: Sat Jul 24, 2021 11:04 am
bobcat2 wrote: Tue Jul 20, 2021 10:42 am Inflation hedges my wife and I use are Social Security, CPI indexed pension, TIPS (bonds and etfs), I-bonds, and a small holding in the TSP G Fund.

Stocks are not an inflation hedge. The correlation between stocks and inflation is approximately zero. You cannot hedge inflation with an asset that has zero correlation to inflation. (You can't hedge anything with an asset that has zero correlation to the thing you are trying to hedge.) While stocks don't perform as poorly as nominal bonds during periods of high inflation, stocks typically don't perform well when inflation is high. The two decades of very high inflation in the 20th century (1910-19 & 1970-79) were both decades when the real return on US stocks was negative.

BobK
Yeah, thinking of stocks as an inflation hedge is particularly dangerous given the over-love of stocks on this forum already IMO. "Let's add 'inflation hedge' to all the other glories of The Ultimate Asset, stocks!". Not really, as you say and demonstrate further in later posts. Stocks are a less bad thing to be in than long nominal bonds when inflation greatly increases, hardly the same as 'a hedge'. High inflation tends to mean more uncertain inflation, which shows up as higher risk premium in the discount rate applied to earnings. Many people seem to stop at the reasonable inference that expected real profits wouldn't change a lot with higher inflation. But even if that's true (not entirely obvious) it leaves out the likelihood of a higher real risky discount rate applied by the market to those profits to get the stock PV.
+1

Stockism ("stock fetish") seems well-ensconced on Bogleheads.
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NiceUnparticularMan
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by NiceUnparticularMan »

A few quick thoughts:

(1) It is pretty important to distinguish expected inflation from unexpected inflation, and then short-term from long-term.

Cash, for example, if by that one actually means very short-term Treasuries or such, has negative expected real returns over the short term these days. In the long-term--it will depend on future rates, although the trend isn't good. Responsiveness to unexpected inflation? It should go up in response to short-term unexpected inflation, but still stay negative real anyway. Long-term? Again, depends on future rates.

So cash's relationship to inflation is complicated and depends on what you are actually talking about.

(2) I agree an owned residence with a low fixed rate mortgage is a double edge of sorts, particularly if you don't plan on moving! The implied rent savings will go up in real terms, the mortgage payments down in real terms, so that is all good. BUT . . . you do have to factor in things like property taxes, maintenance, and so on, which could track upward with inflation.

(3) Finally, people are quite right to keep asking whether a given "inflation hedge" will work at a portfolio level. And it is definitely the case a lot of things, like TIPS or Social Security or so on, ONLY hedge themselves, nothing more.

Still, you can do a lot of things which add up.

Hold some long term nominal debt, and don't hold nominal bonds in your own currency, ONLY inflation-protected bonds or things like stable value funds, the TSP G Fund, and pensions/Social Security which adjust upward with inflation.

In terms of equities, mix in some extra REITs, a really healthy dose of stocks not in your currency zone, value tilts . . . .

If you do all this sort of stuff pretty systematically, you will be minimizing your exposure to unexpected inflation, including of the relative currency-devaluation form, and on net will at least have a good chance of doing relatively well (versus an otherwise similar but more neutral or disinflation-oriented portfolio) in the event of unexpectedly high inflation.

But if you want to start with a portfolio that is biased toward disinflation--such as a portfolio made up largely of nominal bonds and stocks from your own currency zone--then yeah, there is not much you can do to offset that orientation with small allocations.
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by JackoC »

HanSolo wrote: Sat Jul 24, 2021 6:50 pm
Aged Maduro wrote: Tue Jul 20, 2021 12:49 pm Gold, quite frankly, is a lousy investment. It is expensive to buy and sell, difficult to store and does not create an income stream. In an apocolyptic scenario it would also be quite dangerous once it becomes known that you have any.
Reality is not always so black-and-white. Sometimes there are scenarios that are not quite total apocalypse. Consider that gold may have been a useful holding in Taiwan during the hyperinflation of the Old Taiwan Dollar. Although there was a war going on, society was not in a Mad Max scenario at the time, as far as I'm aware.

Rather than considering total apocalypse, my question is, how far down the slippery slope can we go before things get uncomfortable? The federal debt, for example, may be sustainable at it's current level (as a percentage of GDP), or even twice the current level, but I wonder what happens when it's 10, 20, or 100 times higher.
Right, the arguments here against gold often seem to have tunnel vision about 'apocalypse'. But the arguable majority of humans live now, not to mention through history, in pretty crummy countries with institutions they can't really trust. In those many cases right now the USD may be a better choice than gold, but there is no guarantee the US does not become such a place eventually*. These are human societies, so is ours.

Although I'm not saying gold is necessarily the best way to deal with the whole range of possibilities, not IMO the main or only way. Gold having a big effect in much less than 'apocalypse' scenarios might imply to some people a large %, 25% perhaps (like 'Harry Browne Permanent Portfolio'). At that level of course the drawbacks of gold in completely normal times (~zero real expected return, then again rich world govt bonds now have well under 0% real expected return, but gold has also been much more volatile) would also have a significant effect.

A smaller % I guess you could say is for 'nearer apocalypse'. But I am also puzzled by certain 'reasoning' often given on this topic. For example 'people could find out you have a last little bit of wealth to sustain your life'. Would you really better off *not* having a last bit to sustain your life? Likewise if the gangs (of people you don't know) running rampant hold you hostage in your home torturing you to reveal the location of valuables, are you really better off if you have nothing to offer them? In both cases I'm assuming very basic common sense: you haven't advertised to anybody beforehand what/where about your valuables.

*if you think you'll 'see it coming', you're contradicting even loose belief in market efficiency. If gold goes from $1800 to $2000, possibly in part because of slight further deterioration in US divisiveness, lack of broad trust in institutions, etc. you're not going to be able to see that at first, media pieces 'explaining' the price bump up aren't going to say it, the writers won't know it either. But if you don't like gold at $1800, you probably won't like it at $2000. And then if the trend continues to $3000 maybe media pieces will begin to say 'this is part due to X (socio-political development, let's steer clear of even a hypothetical example to avoid offending delicate sensibilities here).' Then you may say 'OK I might want to look at gold now, but I'll wait till the tension abates a little'. Then it goes to $4,000. I am *NOT* 'predicting' this, just saying if you think 'I don't like gold now, but I could always buy it if things start in the direction where it's more useful...' you are making a silly statement. If you can foresee that way you should be trading for a living with Other People's Money, right now.
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by Blue456 »

bobcat2 wrote: Tue Jul 20, 2021 10:42 am Inflation hedges my wife and I use are Social Security, CPI indexed pension, TIPS (bonds and etfs), I-bonds, and a small holding in the TSP G Fund.

Stocks are not an inflation hedge. The correlation between stocks and inflation is approximately zero. You cannot hedge inflation with an asset that has zero correlation to inflation. (You can't hedge anything with an asset that has zero correlation to the thing you are trying to hedge.) While stocks don't perform as poorly as nominal bonds during periods of high inflation, stocks typically don't perform well when inflation is high. The two decades of very high inflation in the 20th century (1910-19 & 1970-79) were both decades when the real return on US stocks was negative.

BobK
What about unhedged ex-US stocks?
halfnine
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by halfnine »

EnjoyIt wrote: Fri Jul 23, 2021 5:08 pm
halfnine wrote: Fri Jul 23, 2021 3:10 pm
EnjoyIt wrote: Fri Jul 23, 2021 10:08 am
SemiRetire wrote: Mon Jul 19, 2021 11:25 pm You have hit all the main ones.

Bullets, Whiskey, and other similar type commodities besides gold.

I mean in say Argentina Venezuela people reportedly buy cars to store wealth in really high inflation areas.

I am not doing any of those. You cant even buy ammo now probably lol.
If there is anything I learned during this recent recession is that I don't have enough ammo or ammo making capability. If/when things get back to normal, I am stock piling primers, powder and bullets.
I am not going to discount a base amount of ammo. But I've always been curious with people's plans to have magnitudes of it. What exactly is it going to do? If you have enough for mini-army, you will likely need a mini-army to keep it. I've read many accounts of what has happened to various people around the world, but fighting off looter after looter after looter doesn't really pop up. Normally half a dozen to a dozen guys show up at 3 AM and all the ammo in the world isn't going to stop them. And using it as a store of value and trading it off just gives away that you have plenty.
Glad to answer. Some of us enjoy shooting our guns and train those skills. I easily go through 50-150 bullets a session. When prices per bullet increase from just a few cents to 80 cents each, that hobby starts to become prohibitive. I ran very close to running out of ammo this year.
I can completely understand this aspect of stocking up on ammo. When I was a child my mother remarried for a bit and my step-father was quite an avid outdoorsman. He had a property out in the hills and we would go there regularly to shoot guns. He also had what I believe was a reloading press. I remember it because it was my job to use the press to assemble the bullets. So owning additional ammo as a specific hedge for sporting purposes I can grasp the concept. I also understand that as with many skills if you don't use it you lose it, so to ensure regular training the requisite amount of ammo would be required for this. However, just like 10% TIPs only protects that portion of one's portfolio having additional ammo only protects that portion of one's recreational gun shooting or training activities. So where we may diverge (and there are levels to this) is what function ammo would have to diversify beyond this.
EnjoyIt wrote: Fri Jul 23, 2021 5:08 pmI have some friends who have sold guns and ammo to others for a nice profit over the last year. Lastly, in the very very very unlikely event that the world turns into needing to defend yourself as well as hunt for food, it is nice to have plenty of ammo to be prepared.

Plenty of people here talk about 2% or lower withdrawal rates in retirement. To need such a rate, returns have to be far far worse than the great depression. If that really does occur, ammo, a desirable skill, as well as items to barter will be far more valuable than a worthless portfolio of stocks and bonds. But that is a whole other topic of discussion.
I personally do not see ammo (or guns) as a store of value to be exchanged. At some level of inflation or some level of crisis, I don't believe it is in one's best interest to display these items. Going to the shooting range for fun or training probably becomes a risky way of indicating one has valuables at home. And I wouldn't be out selling ammo or guns anymore than I would be out exchanging gold coins. So during these times excess ammo (or excess gold) just sits there. These items will certainly have value but that value can't be extracted without inherent risk until more normal times persist.

If the worse was to come to pass it is very unlikely having loads of ammo will be helpful for hunting game. It would probably only be realistic for a very small subset of the population. First you would have to already live where the game is. And to keep it from being hunted out nobody else would need to be living in the area. I am not sure there are too many places that would fit this criteria. And as to hunting game in itself, traps would probably be a much better use of one's time and valuable energy if one was doing this for food and trying to minimize energy expenditure.
InvestInPasta
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by InvestInPasta »

bobcat2 wrote: Sat Jul 24, 2021 9:18 amOwning your home is an inflation hedge because the alternative is renting and rents rise with inflation. You don't want to be renting during a period of high inflation. I know because I was renting in the 1970s while my parents owned. It was easy to see the difference owning vs. renting made.
BobK
And rental properties should be a good hedge against inflation too, inflation goes up and the landlord increases the rent.
It's a pity they are not a passive investment at all.

Moreover where people can feel the inflation is in house prices.
Let's say I have just retired with 2 million $ and in the 20 years ahead I wasn't good in hedging my savings against inflation (those $2M should have turned into $4M inflation adjusted). Well who minds if milk or a beer or a dinner at the restaurant is now twice the price it was 20 years ahead, with my savings I can still buy enough milk, beers, dinners, for the rest of my life.
But what if I want to buy another house to live a more confortable retirement, and the price of houses doubled? In that moment I would realize that inflation has really hit my savings badly, and I would feel much poorer than 20 years ahead.
When I study English I am lazier than my portfolio. Feel free to fix my English and investing mistakes.
Unwinder
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by Unwinder »

corn18 wrote: Sat Jul 24, 2021 1:09 pm The folks that had a 7.5% 30 year mortgage in 1974 made out like bandits during the next decade of high inflation. Then they could have refinanced to follow rates down. That's a high quality inflation hedge, IMHO.

Image
Great point! And nice chart that really explains your idea. 7.5% sounds scary, but when you look at the big picture it's not that bad.
learntoinvest123
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by learntoinvest123 »

Inflation in US has not been durable for 2 decades. Even with high CPI numbers 10 year treasury is at 1.3%. That is the market saying it does not believe those CPI numbers will stick. It also has to be a big rise year or year not QoQ.

It goes to figure that if getting a mortgage is a great inflation hedge, then person taking opposite side of that trade is losing money.
So you can short long term treasury (like TLT), since that would lose money. I would treat this as insurance and not really look at it to beat market returns.

Most likely shorting long term bonds will lose money. There is simply no conviction that inflation is a relevant factor at this point. If that changes, this will be a earliest winner over any other asset class (since they are trailing, and this would be leading).
000
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by 000 »

Aged Maduro wrote: Tue Jul 20, 2021 12:49 pm In an apocolyptic scenario it would also be quite dangerous once it becomes known that you have any.
What?

Would it be more dangerous than it becoming known that you have anything else of value?

Are there going to be bands of thieves in the apocalypse looking for gold bars, but not food, water, weapons, mates, etc.?
Aged Maduro
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by Aged Maduro »

000 wrote: Tue Jul 27, 2021 8:13 pm
Aged Maduro wrote: Tue Jul 20, 2021 12:49 pm In an apocolyptic scenario it would also be quite dangerous once it becomes known that you have any.
What?

Would it be more dangerous than it becoming known that you have anything else of value?

Are there going to be bands of thieves in the apocalypse looking for gold bars, but not food, water, weapons, mates, etc.?
Yes, of course it would be more dangerous because it would have a higher percieved value than those other items.
000
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by 000 »

Aged Maduro wrote: Wed Jul 28, 2021 5:07 am Yes, of course it would be more dangerous because it would have a higher percieved value than those other items.
So your position is:

1. Gold is more valuable in an apocalypse than food, water, weapons, etc.

2. Gold is still a "lousy investment" not worth holding because it will be too dangerous to use in the apocalypse.

Those two ideas appear to be in conflict to me. If it's too dangerous to use gold (e.g. in commerce), why would thieves prefer it?
EnjoyIt
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by EnjoyIt »

Aged Maduro wrote: Tue Jul 20, 2021 12:49 pm The two best inflation hedges are stocks and investment real estate that is safely leveraged with a low interest fixed rate mortgage. Both of these asset classes will increase in value while throwing off inlation adjusted returns through dividends and rents.

Gold, quite frankly, is a lousy investment. It is expensive to buy and sell, difficult to store and does not create an income stream. In an apocolyptic scenario it would also be quite dangerous once it becomes known that you have any.

Crypto is purely speculative at this point and just like gold it creates no income stream.

Stocks and real estate is where it's at.
In your example, gold and plenty of ammo is better than no gold and no ammo.
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RoadagentMN
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by RoadagentMN »

Howard Ruff is holding on line #1.
seajay
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by seajay »

Aged Maduro wrote: Tue Jul 20, 2021 12:49 pmGold, quite frankly, is a lousy investment. It is expensive to buy and sell, difficult to store and does not create an income stream.
BRK-A shares are expensive to buy and create no income stream either. The design is you roll your own DIY dividends, to the amounts and times of your own choosing.

50/50 BRK/Gold yearly rebalanced since 1986, 8.4% annualized real. Gold was the better performing asset in 16 of the years, BRK best in 19 of the years. Warren Buffett doesn't like gold, apparently prefers silver
Our second non-traditional commitment is in silver. Last year, we purchased 111.2 million ounces.
https://www.berkshirehathaway.com/letters/1997.html Swapping out gold for silver and 8.3% annualized, where silver was best in 14 of the years, BRK best in 21 of the years.

Since the start of 2000, slowed up some, 7.5% for 50/50 BRK/Gold, 7.2% for 50/50 BRK/Silver (as of end of 2020). With real returns such as those, typical DIY dividends could have been comfortable extracted.

PV only has gold data back to the start of 2005, and for that 50/50 BRK/gold since 2005 is again still 7.5%

Another comment by Buffett in his Berkshire Hathaway Chairman letter 1979 ...
One friendly but sharp-eyed commentator on Berkshire has pointed out that our book value at the end of 1964 would have bought about one-half ounce of gold and, fifteen years later, after we have plowed back all earnings along with much blood, sweat and tears, the book value produced will buy about the same half ounce. A similar comparison could be drawn with Middle Eastern oil. The rub has been that government has been exceptionally able in printing money and creating promises, but is unable to print gold or create oil.
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by SteadyOne »

learntoinvest123 wrote: Mon Jul 26, 2021 8:38 pm Inflation in US has not been durable for 2 decades. Even with high CPI numbers 10 year treasury is at 1.3%. That is the market saying it does not believe those CPI numbers will stick. It also has to be a big rise year or year not QoQ.

It goes to figure that if getting a mortgage is a great inflation hedge, then person taking opposite side of that trade is losing money.
So you can short long term treasury (like TLT), since that would lose money. I would treat this as insurance and not really look at it to beat market returns.

Most likely shorting long term bonds will lose money. There is simply no conviction that inflation is a relevant factor at this point. If that changes, this will be a earliest winner over any other asset class (since they are trailing, and this would be leading).
The problem with using US treasury rates as market signal is that Fed’s asset buying program distorted market to the extent that it does not reflect inflation IMHO. 30 years ago postage stamp was 25c now it’s 55c. Last year it was 50c. 10% increase in one year. I recall stores selling chicken legs for 25c per pound 20 years ago also. Gas was a dollar. We will never see those prices again.

So, what would have been the best investment 30 years ago for me to compensate for inflation like this? Gold was 400 then. Now it’s 1,800. That might have worked. 1 dollar in VINIX would have brought me $24 today. Cash would be inflation equivalent
“Every de­duc­tion is al­lowed as a mat­ter of leg­isla­tive grace.” US Federal Court
NiceUnparticularMan
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by NiceUnparticularMan »

Just quickly, I note that Berkshire-Hathaway is a holding company, which means it owns other companies. The companies owned by Berkshire-Hathaway, and thereby by Berkshire-Hathaway stock owners, have net earnings which are then owned by the stock owners. The fact they are not paid out in dividends does not make those net earnings any less real.

Stored, free-floating gold has no such earnings. Hence the effective price to earnings ratio of stored free-floating gold is infinity, which is one of the reasons it is at risk of losing essentially all of its real value over any given period.
SemiRetire
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by SemiRetire »

halfnine wrote: Fri Jul 23, 2021 3:10 pm
EnjoyIt wrote: Fri Jul 23, 2021 10:08 am
SemiRetire wrote: Mon Jul 19, 2021 11:25 pm You have hit all the main ones.

Bullets, Whiskey, and other similar type commodities besides gold.

I mean in say Argentina Venezuela people reportedly buy cars to store wealth in really high inflation areas.

I am not doing any of those. You cant even buy ammo now probably lol.
If there is anything I learned during this recent recession is that I don't have enough ammo or ammo making capability. If/when things get back to normal, I am stock piling primers, powder and bullets.
I am not going to discount a base amount of ammo. But I've always been curious with people's plans to have magnitudes of it. What exactly is it going to do? If you have enough for mini-army, you will likely need a mini-army to keep it. I've read many accounts of what has happened to various people around the world, but fighting off looter after looter after looter doesn't really pop up. Normally half a dozen to a dozen guys show up at 3 AM and all the ammo in the world isn't going to stop them. And using it as a store of value and trading it off just gives away that you have plenty.
Same thing one does with excess whiskey, cigarettes, stock, bitcoin, bonds, gold etc when one needs to buy things bro.

Cheers : )
SemiRetire
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by SemiRetire »

EnjoyIt wrote: Fri Jul 23, 2021 10:08 am
SemiRetire wrote: Mon Jul 19, 2021 11:25 pm You have hit all the main ones.

Bullets, Whiskey, and other similar type commodities besides gold.

I mean in say Argentina Venezuela people reportedly buy cars to store wealth in really high inflation areas.

I am not doing any of those. You cant even buy ammo now probably lol.
If there is anything I learned during this recent recession is that I don't have enough ammo or ammo making capability. If/when things get back to normal, I am stock piling primers, powder and bullets.
Yeah I told myself when O was elected that I would restock up on the rebound but never did. Cheers
heyyou
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by heyyou »

Expecting to adapt is not precisely a hedge, but it is part of the solution.
by phxjcc » Fri Jul 23, 2021 3:32 pm
Toyota Tacoma
Yes that is a hedge, especially in a climate like Phoenix (PHX) has.
I buy one with a hundred thousand miles, then drive it a second hundred thousand.
seajay
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by seajay »

NiceUnparticularMan wrote: Thu Jul 29, 2021 6:50 am Just quickly, I note that Berkshire-Hathaway is a holding company, which means it owns other companies. The companies owned by Berkshire-Hathaway, and thereby by Berkshire-Hathaway stock owners, have net earnings which are then owned by the stock owners. The fact they are not paid out in dividends does not make those net earnings any less real.

Stored, free-floating gold has no such earnings. Hence the effective price to earnings ratio of stored free-floating gold is infinity, which is one of the reasons it is at risk of losing essentially all of its real value over any given period.
Only if stored/locked away. Golds 'dividends' are via other means that require it to be traded. Gains can arise out of price appreciation, income production and/or volatility capture (correlations).

Gold is finite and as such might broadly see its value/price rise with inflation (devaluation of currency), but tends to do so in a volatile manner. Stock price only, global here - not the US right tail (great) historic case, might also broadly pace inflation, with added benefit of paying dividends on top, historically around 4% dividends (again excluding the US where taxation policies incited more of dividends being retained/greater price appreciation of share prices).

Stock price only 0% real, 4.5% dividends on top = 4.5% real.
Gold 0% real, no dividends.
Both having around 20 standard deviations in yearly returns.

50/50 of both yearly rebalanced and the stock price only/gold 50/50 = 12% standard deviation, with 2.25% dividends on top.

Factor in a reduction from 0% real with 20% standard deviation down to 0% real and 12% standard deviation for 50/50 compounds to a +1.3% better outcome due to volatility reduction (better compounding).

For all-stock during accumulation years sometimes monthly savings are added at relative highs, sometimes at relative lows, broadly washes/averages (if anything tends to average-in more at relative highs). 50/50 stock/gold and adding savings to the laggard is more inclined to add at relative lows. Drawdown and for all-stock drawing is inclined to draw at a average level overall, whilst 50/50 and drawing from the highest is inclined to draw at a above average level. Overall that adds another 1% benefit to the 50/50 stock/gold approach. Combined 1.3% + 1% benefits = 2.3%, which if attributed to the gold half alone is like it having earned/paid a 4.6% dividend.

Same reward, with less volatility, better risk-adjusted reward. 1972 to recent, around 10.6% CAGR, with 50/50 having a 0.49 Sharpe versus all-stock 0.45

Since 2005, 50/50 BRK/gold has provided a 7.5% real, without any taxable dividends/interest streams. During periods of stress when inflation and interest rates tend to rise/spike, so also do taxes. Compare a zero dividend/interest portfolio to that of dividend/interest paying when inflation and interest might both be up at 10% levels and where taxation for average investor had risen to 33% levels ... and those holding zero dividend assets relatively outperform by 3.3%.
EnjoyIt
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by EnjoyIt »

SemiRetire wrote: Wed Aug 25, 2021 6:56 pm
EnjoyIt wrote: Fri Jul 23, 2021 10:08 am
SemiRetire wrote: Mon Jul 19, 2021 11:25 pm You have hit all the main ones.

Bullets, Whiskey, and other similar type commodities besides gold.

I mean in say Argentina Venezuela people reportedly buy cars to store wealth in really high inflation areas.

I am not doing any of those. You cant even buy ammo now probably lol.
If there is anything I learned during this recent recession is that I don't have enough ammo or ammo making capability. If/when things get back to normal, I am stock piling primers, powder and bullets.
Yeah I told myself when O was elected that I would restock up on the rebound but never did. Cheers
Next time around...Next time around.
Even my buddies who stockpiled, I have a feeling they are getting a bit uncomfortable at how low their reserves are getting. You can see it when we still have a few more drills to do, and some are bowing out in what I believe is to conserve ammo.
A time to EVALUATE your jitters: | viewtopic.php?p=1139732#p1139732
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