Digit wrote: ↑Thu May 27, 2021 6:52 am
Thank you for all your responses in this great forum.
Regarding gold in the last comment.
Perhaps, I should swap quite a bit of my all-world index ETFs into mining ETFs and, perhaps, agriculture ETFs?
If my main worry is that inflation will rise, leading to a rise in interest rates, leading to basically everything crashing, then an overweight in metals and farming might be a bit of a hedge? They should go up if prices go up, or?
There's a thread on inflation protection assets, drawing on a new paper by Finance professor Campbell Harvey -- over in the main investing section of the board. Gold has poor inflation protection properties, and most of them are derived from a single year's data (1979). Harvey's research has been consistent on that (if you track his papers from his Duke University webpages).
If interest rates rise, then generally real estate prices fall (or don't go up as much). Farmland would be an example. The rent from farmland will have lower value, comparatively.
What you see in the 1970s was soaring grain prices (the Russian grain harvest failed) and other commodities led to soaring land prices in the US Midwest. -- this was during the inflationary years. In the 1980s many many farmers in the Midwest went broke as they could not service the debts they had incurred to buy more land and machinery, and prices reverted to their long term downward trend. There was another boom in the early 2000s w increased demand from China, but I don't think the collapse was anything to the same scale.
There was a fashion for long term investors to buy farmland. I think Yale Endowment might own some, and TIAA CREF (the professors' pension fund) certainly did. I guess they rent it out to farmers to earn a return.
The long run real return of English arable (ie in the Eastern part of the country, which is the flattest and most competitive part, economically -- exporting grain since the Middle Ages) has been about 1% real in the very long run. Colleges of U of Cambridge have done very well over the centuries (literally) owning farmland. But it's a very long term game.
Metals? Who knows. Storage costs are very significant for almost all commodities (except for gold) - which gives your portfolio a strong negative to overcome to make a positive return. (I realise there is the roll yield on commodity futures and I really can't explain that, although we have had many threads).
Empirically the commodity funds available to retail investors have done quite poorly. Especially the oil ones (the big oil ETF, ticker OIL I think; there's also USO)- -they have not tracked the spot price of oil.