How are you preparing for inflation and higher interest rates?

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tvubpwcisla
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How are you preparing for inflation and higher interest rates?

Post by tvubpwcisla »

I am curious what you are doing, if anything, to prepare for inflation and higher interest rates?

:beer
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runner3081
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Re: How are you preparing for inflation and higher interest rates?

Post by runner3081 »

Not a thing. Continuing on as we have in the past. I don’t worry about things like inflation that we can’t control. We spend well below our means anyways.
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David Jay
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Re: How are you preparing for inflation and higher interest rates?

Post by David Jay »

tvubpwcisla wrote: Fri Jun 11, 2021 7:42 pmI am curious what you are doing, if anything, to prepare for inflation and higher interest rates?
Delaying claiming Social Security, as SS is inflation adjusted.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
aristotelian
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Re: How are you preparing for inflation and higher interest rates?

Post by aristotelian »

My plan is to have a diversified portfolio and stay the course.
dogagility
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Re: How are you preparing for inflation and higher interest rates?

Post by dogagility »

I'm preparing by tuning out the noise and staying the course. :beer
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Re: How are you preparing for inflation and higher interest rates?

Post by KlangFool »

OP,

I am prepared for inflation, deflation, lower interest rate, higher interest rate, and whatever. I am diversified across stock, bond, CASH, and physical Gold/Silver.

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

Post by ClassII »

Get up to my eyeballs in low, fixed-rate debt. :mrgreen:
Johnathon Livingston
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Re: How are you preparing for inflation and higher interest rates?

Post by Johnathon Livingston »

I’m not doing anything differently in response to inflation, and I’m not worried about it either. I dropped my bond allocation from 15% to 10% earlier this year and may drop it further but that’s because I’m bullish on stocks and have been since the pandemic crashed the market last year. Been pouring money into stocks like crazy! Some people can’t sleep at night worrying about stocks. I can’t sleep at night thinking about those low yield bonds!
Beehave
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Re: How are you preparing for inflation and higher interest rates?

Post by Beehave »

If there's inflation, and if interest rates go up and bond prices retreat, I plan to rebalance by adding to bonds, and, if annuity payouts improve, possibly a bit of that too - - maybe laddered and deferred.

The strategy of taking on debt now at low rates is not appealing to me personally even though it might be a smart financial move. I'd rather buy debt obligations when they pay well instead, because I do not like owing money.

Also, I expect stocks to catch up with inflation over time, should inflation occur, so I'm comfortable being diversified, holding stock, and rebalancing as appropriate into deflation and inflation.
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Re: How are you preparing for inflation and higher interest rates?

Post by 000 »

I am preferring cash to bonds, keeping gold in portfolio, modestly tilting stock towards international and natural resources producers. Keeping an eye on crypto too.
UpperNwGuy
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Re: How are you preparing for inflation and higher interest rates?

Post by UpperNwGuy »

tvubpwcisla wrote: Fri Jun 11, 2021 7:42 pm I am curious what you are doing, if anything, to prepare for inflation and higher interest rates?
Nothing.

Why should I do anything? When I established my portfolio, I considered all the bad things that could happen and set up the portfolio accordingly.
Fundhunter
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Re: How are you preparing for inflation and higher interest rates?

Post by Fundhunter »

Here we go with our crystal ball predictions!!! So, inflation and interest rates are going to go up in the immediate future? Maybe. But markets are NOT predictable. So I will do what I have done for a while now. including having a big chunk of my fixed income portfolio in the Vanguard TIPS Fund. I think Bogleheads do not do something different because of buzz about what is supposedly going to happen in the markets tomorrow.
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ClevrChico
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Re: How are you preparing for inflation and higher interest rates?

Post by ClevrChico »

I'm preparing by not car or house shopping - that seems to be the main focus of the temporary (so far) inflation.

Other than that, I'm staying the course, following my IPS, and my asset allocation. With the strong equity returns, my new money has been flowing into bonds.
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leeks
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Re: How are you preparing for inflation and higher interest rates?

Post by leeks »

I bought $10K more Ibonds this year to keep our emergency fund up with inflation. But I would have done that anyway, regardless of current inflation rate or predictions.
Nathan Drake
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Re: How are you preparing for inflation and higher interest rates?

Post by Nathan Drake »

ExUS, EM, and SCV is roughly 80% of my portfolio, I suspect it will do well with an increase in inflation
Fat Tails
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Re: How are you preparing for inflation and higher interest rates?

Post by Fat Tails »

Since US inflation is tied to the US Dollar, one could overweight their International stock portion with an international fund that does not hedge the dollar.

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

Post by rockstar »

I bought some VNQ this year.
invest4
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Re: How are you preparing for inflation and higher interest rates?

Post by invest4 »

The only modest change I have made is to have new monies which would be utilized for bonds, invested in Stable Value (2%) within my 401k. Otherwise, I am maintaining my existing AA. I completely understand the strong desire to optimize everything. However, my own experience suggests that I don't know how things will unfold and which investments will be optimal. Thus, I don't tinker that much anymore...versus when I was a bit younger (and before I discovered this fine forum).

Also, while I don't really consider it an active preparation for inflation per se, I am very pleased to have refinanced our home (30 yr @ 2.625) late last year which I believe also provides some good diversification (inflation hedge) and optionality.
Last edited by invest4 on Sat Jun 12, 2021 2:15 am, edited 1 time in total.
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Re: How are you preparing for inflation and higher interest rates?

Post by AerialWombat »

Next time I go to the grocery store, I’ll buy a 4-pack of toilet paper rolls instead of a 2-pack, just in case.

I may also start substituting water for vodka in my diet, but that’s more of a health thing.

Otherwise, nothing.
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dcabler
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Re: How are you preparing for inflation and higher interest rates?

Post by dcabler »

I'm doing nothing different than I did before some people started to expect inflation and interest rates to rise. That is, I hold a mix of stocks, nominal bonds, TIPs, and Ibonds.
UpperNwGuy
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Re: How are you preparing for inflation and higher interest rates?

Post by UpperNwGuy »

Fat Tails wrote: Sat Jun 12, 2021 1:22 am Since US inflation is tied to the US Dollar, one could overweight their International stock portion with an international fund that does not hedge the dollar.
What are some examples of such funds?
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Re: How are you preparing for inflation and higher interest rates?

Post by Call_Me_Op »

UpperNwGuy wrote: Sat Jun 12, 2021 5:17 am
Fat Tails wrote: Sat Jun 12, 2021 1:22 am Since US inflation is tied to the US Dollar, one could overweight their International stock portion with an international fund that does not hedge the dollar.
What are some examples of such funds?
Most of the international index funds are unhedged.
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chw
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Re: How are you preparing for inflation and higher interest rates?

Post by chw »

For inflation, have bought Ibonds over the past 20 years to fill a 20% of FI allocation to them.

For rising interest rates, have allocated 60% of my FI allocation to a Stable Value fund in my 401k beginning last fall that yields 2.5-3% annually. Will gradually reallocated to a core bond fund when the yield on it rises above 2.5% for 2 quarters.
grok87
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Re: How are you preparing for inflation and higher interest rates?

Post by grok87 »

Call_Me_Op wrote: Sat Jun 12, 2021 5:25 am
UpperNwGuy wrote: Sat Jun 12, 2021 5:17 am
Fat Tails wrote: Sat Jun 12, 2021 1:22 am Since US inflation is tied to the US Dollar, one could overweight their International stock portion with an international fund that does not hedge the dollar.
What are some examples of such funds?
Most of the international index funds are unhedged.
Vanguard's thinking, which i agree with, is to not-hedge international stock exposure but to hedge international bond exposure. i think the rationale runs a little like this:

1) for say Swiss stocks (just to pick a specific country) if their currency (CHF) falls against to dollar then to a USD investor that might seem bad, i.e. the value of those stocks would go down in USD, all else equal.

2) The trouble is "all else is not equal"! if CHF depreciates against USD that makes Swiss exports more competitive and boosts the earnings potential of those stocks, so their price might go up? so it's less clear that currency hedging is useful.

3) For international Bonds for a USD investor, Vanguard's thinking is yes, you want to currency hedge.

4) But how you do this matters. Consider a $100k 10 year Austalian (AUD) bond yielding 1.5%. You can think of that as paying AUD 1.5k each year for 9 years and then paying AUD 101.5k in year 10. How exactly does the hedging work? are you hedging each of those 10 payments in the currency futures/forwards market back to USD? if you do this you will in effect transform the AUD bond into a USD bond. the only difference at that point is that you bear this risk of Australian government credit risk (i.e. that they default on payment) instead of US treasury credit risk.

5) This is not what Vanguad does. Instead they hedge the AUD bond in the currency spot market. THis leaves the USD investor to bear not only Australian government credit risk, but also AUD yield curve risk- i.e. what happens to the Australian yield curve matters. This is generally thought to be a good thing as USD investors have a lot of USD yield curve risk so adding the yield curve risk of other countries is thought to be diversifying.

cheers,
grok
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UpperNwGuy
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Re: How are you preparing for inflation and higher interest rates?

Post by UpperNwGuy »

Call_Me_Op wrote: Sat Jun 12, 2021 5:25 am
UpperNwGuy wrote: Sat Jun 12, 2021 5:17 am
Fat Tails wrote: Sat Jun 12, 2021 1:22 am Since US inflation is tied to the US Dollar, one could overweight their International stock portion with an international fund that does not hedge the dollar.
What are some examples of such funds?
Most of the international index funds are unhedged.
You're right. I was thinking of Vanguard's International Bond Index Fund when I wrote my question, and it is indeed hedged.
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Re: How are you preparing for inflation and higher interest rates?

Post by nisiprius »

The question assumes that we should be making a change. It includes two sets of predictions.

a) We were right not to prepare before, because until recently it was a sure thing that there would be be clear sailing ahead, with no danger of inflation and higher interest rates;

b) We should change to prepare now, because it is a sure thing now that inflation and higher interest rates are coming.

The whole point of "staying the course" is not to do that.. You pick something that will be tolerable, you stick with it. If you are worried about a predicted headwind, you don't change your course, you change your estimated time of arrival.

Strategies are compromises. They recognize that although there is a benefit to adjusting based on a prediction if the prediction comes true, there is a cost to adjusting to a prediction if the prediction does not come true. For eleven years Larry Swedroe assembled a list at the beginning of every year of the "sure things" everyone agreed were going to happen in the year ahead. 35% came true.

When talking about bonds, we need to keep two considerations completely separate. Rising interest rates and inflation are different dangers with different characteristics and need to be discussed separately. Rising rates in themselves are not the bugaboo they are often made out to be.

Source

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1) In real life, real bond funds made money even when interest rates were rising, just not as fast. Rising rates are a headwind, not a shipwreck. 2) The effect of a rate rise is a short-term effect and you know about how long it will last: the duration of the bond fund, e.g. 6.2 years for Total Bond, tells you an appropriate holding period. If you hold it for that long, the effect is minimal. 3) In the long run, higher (real) interest rates are a good thing for bond fund owners.

Inflation is a problem. However, it is always a problem. One can make these observations:
  • Right at this moment we are seeing a statistical endpoint issue. The widely-reported year-over-year number is measuring relative to a crater. See Simplegift's posting, How Not to Think of Current Inflation.
  • A coterie of people are perpetually sounding an alarm about hyperinflation being just around the corner. Whenever inflation rates rise, even slightly, this group gets a sounding board and concerns are amplified.
  • If you don't have a significant holding of bonds in your portfolio, then there's no particular reason to worry about them.
Most important, TIPS and series I savings bonds exist. instead of the traditionally recommended Total Bond--VBTLX or BND--you could have substituted a TIPS fund like Vanguard Inflation-protected Securities, VAIPX, or the iShares TIP ETF, as Scott Burns suggested in his "Margarita Portfolio." In normal times, meaning the whole time TIPS have existed, this has been a sorta-OK, perfectly reasonable choice. It just hasn't been as good in terms of risk-adjusted return, mostly because of slightly higher volatility. But here is a backtest of a "standard" three-fund portfolio--say 36% Total Stock, 24% Total International, 40% Total Bond--and one using VAIPX.

Source

Image

I am not trying to make out that the portfolio with the TIPS fund is actually better. Just that it hasn't made much difference. You actually made a little higher return using the TIPS fund but you paid for it with higher volatility. Exploring would find time periods when using the TIPS fund was a little worse.

The usual knock on TIPS amounts to saying that they don't provide perfect inflation protection. Fine. But they provide a heck of a lot more inflation protection than not using them.

I have a bond-heavy portfolio, and I have been buying TIPS almost literally since they were first issued. If we count only marketable bonds (i.e. bond funds) my fixed income holdings are more than half TIPS. If we include series I savings bonds, it's well over 60%. So, a critic might say, the bond part of my portfolio is only 60% protected against inflation plus the short-term correlation with inflation is imperfect yadda yadda.

So my answer is that I am doing nothing to prepare for higher interest rates, if it happens I'll grin and bear it.

And whatever I am doing to "prepare" for higher inflation is something I've been doing for a long time.

[Edited by Nisiprius in response to appropriate criticism from Robot Monster].
Last edited by nisiprius on Sat Jun 12, 2021 8:26 pm, edited 6 times in total.
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Re: How are you preparing for inflation and higher interest rates?

Post by Sandtrap »

Good question:

Nothing.
Once basic "boglehead" retirement portfolio structure and strategy is in place and on a good glide path with occasional rebalancing and A/A adjustments.

Basic 2 Fund hybrid LMP Portfolio with R/E Diversifications.
Will collect SS as late as possible.
No pension.
Retired.

j :D
Last edited by Sandtrap on Sat Jun 12, 2021 6:55 am, edited 1 time in total.
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Re: How are you preparing for inflation and higher interest rates?

Post by z3r0c00l »

On the investment front, holding only stocks and inflation bonds. But the ultimate answer is working hard and saving aggressively. I can cut spending even more if needed, food budget could be cut in half if things get really bad.
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Re: How are you preparing for inflation and higher interest rates?

Post by Jags4186 »

Why do you think there are going to be inflation and higher interest rates? We could simply be readjusting from the pandemic time of deflation and unusually low interest rates. We’re you preparing for inflation and higher interest rates in 2019?
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Re: How are you preparing for inflation and higher interest rates?

Post by MnD »

100% of the fixed income side of our portfolio is divided 2:1 between the TSP G fund and Dodge and Cox Global Bond.
Blended effective duration 1.5 years with a blended yield higher than the 10-year treasury.
70/30 AA for life, Global market cap equity. Rebalance if fixed income <25% or >35%. Weighted ER< .10%. 5% of annual portfolio balance SWR, Proportional (to AA) withdrawals.
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Re: How are you preparing for inflation and higher interest rates?

Post by David Jay »

nisiprius wrote: Sat Jun 12, 2021 6:47 amThe whole point of "staying the course" is not to do that.. You pick something that will be tolerable, you stick with it. If you are worried about a predicted headwind, you don't change your course, you change your estimated time of arrival.
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Re: How are you preparing for inflation and higher interest rates?

Post by grok87 »

David Jay wrote: Sat Jun 12, 2021 7:46 am
nisiprius wrote: Sat Jun 12, 2021 6:47 amThe whole point of "staying the course" is not to do that.. You pick something that will be tolerable, you stick with it. If you are worried about a predicted headwind, you don't change your course, you change your estimated time of arrival.
I may have found a new quotation for my signature line… :happy
it may not be a perfect metaphor. for retirement we are not always in control of our "time of arrival"- layoffs, poor health etc.
RIP Mr. Bogle.
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goingup
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Re: How are you preparing for inflation and higher interest rates?

Post by goingup »

nisiprius wrote: Sat Jun 12, 2021 6:47 am Rising rates are a headwind, not a shipwreck.
How I love an apt nautical analogy. Thanks, Nisiprius. :beer
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Re: How are you preparing for inflation and higher interest rates?

Post by goodenyou »

I have changed little in my portfolio, but as I near retirement, I have given a bit more thought to whether our portfolio has less resilience to inflation. I recently changed a bit of Total Bond to Target Date 2020 in a 401k because of the TIPS exposure. It actually added more stock to the overall portfolio, but I was ok with that. We also added more I-Bonds to our I-Bond account. We have been buying I-Bonds since 2005 when the limit was $30,000 per SSN. We continue to save and have overshot our goals by a significant amount, so there is some resilience to inflation built into that as well.
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Dandy
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Re: How are you preparing for inflation and higher interest rates?

Post by Dandy »

1. delayed SS until age 70
2. decent allocation to TIPS fund in TIRA
3. decent allocation to equities - let the allocation rise about 4% to about 49%.
4. fixed income allocation of about 50% intermediate bond funds, 25% short term bond funds and 25% FDIC products/money market funds.
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Re: How are you preparing for inflation and higher interest rates?

Post by Robot Monster »

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

Livesoft said, "Folks probably missed their chance" to buy VAIPX (Vanguard Inflation-Protected Securities Fund) and that things "will return to more normal levels in a few months". link It's hard to think the suggestion here isn't it's best to wait a few months before buying.

Willthrill had a post about "Inconsistencies with the Boglehead principles?" and one of them is the belief among some here that "you cannot market time stocks, but you can market time bonds". link We should do our best to not try to perpetuate the idea that indeed can be done.

I'd like to share with you something vineviz shared with me, these market-timing headlines from TipsWatch:

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

Post by Blue456 »

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

:beer
I am secretly hoping that there will be prolonged high inflation that will eat away my student loan debt and mortgage. I am also hoping for long periods of recession while I am during accumulation phase.
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Re: How are you preparing for inflation and higher interest rates?

Post by Nate79 »

Blue456 wrote: Sat Jun 12, 2021 9:32 am
tvubpwcisla wrote: Fri Jun 11, 2021 7:42 pm I am curious what you are doing, if anything, to prepare for inflation and higher interest rates?

:beer
I am secretly hoping that there will be prolonged high inflation that will eat away my student loan debt and mortgage. I am also hoping for long periods of recession while I am during accumulation phase.
Inflation doesn't eat away at how much you owe on your loans. The only way you payback the loan faster is by putting more money on the loan which requires more income. If your income doesn't keep up with inflation you will be worse off. If your income grows faster due to the high inflation you will have more money to put at the loan. There is no magic inflation correction.
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Re: How are you preparing for inflation and higher interest rates?

Post by ImUrHuckleberry »

ClevrChico wrote: Fri Jun 11, 2021 11:44 pm I'm preparing by not car or house shopping - that seems to be the main focus of the temporary (so far) inflation.

Other than that, I'm staying the course, following my IPS, and my asset allocation. With the strong equity returns, my new money has been flowing into bonds.
The two things I was waiting to purchase until after the pandemic! Me and everybody else, apparently.
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Re: How are you preparing for inflation and higher interest rates?

Post by David Jay »

grok87 wrote: Sat Jun 12, 2021 7:53 am
David Jay wrote: Sat Jun 12, 2021 7:46 am
nisiprius wrote: Sat Jun 12, 2021 6:47 amThe whole point of "staying the course" is not to do that.. You pick something that will be tolerable, you stick with it. If you are worried about a predicted [forecast] headwind, you don't change your course, you change your estimated time of arrival.
I may have found a new quotation for my signature line… :happy
it may not be a perfect metaphor. for retirement we are not always in control of our "time of arrival"- layoffs, poor health etc.
As a pilot, groundspeed = airspeed - headwind component.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius
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Re: How are you preparing for inflation and higher interest rates?

Post by BigJohn »

High inflation was one of the risks I focused on mitigating when I retired because of my high bond allocation (35\65) so I did two things. First, l made the decision to delay SS to age 70 since its COLA adjusted longevity insurance. I also moved half my bond allocation to TIPS. Having made those decisions some time ago, my reaction to the recent news has been to just stay the course.
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Re: How are you preparing for inflation and higher interest rates?

Post by Ron Ronnerson »

I've got a lot of low-interest debt that's locked at a fixed rate for a long time (2.3% for 30 years, starting this year). I recently took out all the principal I'd paid on my house from 11 years of payments through a cash-out refinance. I did this primarily for liquidity reasons but a side-effect is inflation protection as well since my biggest expense is my mortgage and the payment won't change over time.

Other than the mortgage, property taxes are my next highest expense. Due to Prop 13 in California, they only go up 2% per year, based on the purchase price (bought the home in 2010 when it was priced much lower).

Housing makes up around half of my monthly costs and it's pretty much protected against inflation. However, I didn't make any changes in anticipation of higher inflation; things just happened to work out this way. If inflation takes off and my salary at least sort of keeps up, it might potentially be a net positive in real terms since my largest expenses are fixed.
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physixfan
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Re: How are you preparing for inflation and higher interest rates?

Post by physixfan »

Getting a mortgage as big as possible. Locking in a low interest rate (<3%) for 30 years. Expecting the inflation to inflate the debt away.
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Re: How are you preparing for inflation and higher interest rates?

Post by Toons »

Nothing


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

Post by Nate79 »

physixfan wrote: Sat Jun 12, 2021 2:15 pm Getting a mortgage as big as possible. Locking in a low interest rate (<3%) for 30 years. Expecting the inflation to inflate the debt away.
How do you think inflation will inflate the debt away?
countmein
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Re: How are you preparing for inflation and higher interest rates?

Post by countmein »

Nate79 wrote: Sat Jun 12, 2021 10:54 am
Blue456 wrote: Sat Jun 12, 2021 9:32 am
tvubpwcisla wrote: Fri Jun 11, 2021 7:42 pm I am curious what you are doing, if anything, to prepare for inflation and higher interest rates?

:beer
I am secretly hoping that there will be prolonged high inflation that will eat away my student loan debt and mortgage. I am also hoping for long periods of recession while I am during accumulation phase.
Inflation doesn't eat away at how much you owe on your loans. The only way you payback the loan faster is by putting more money on the loan which requires more income. If your income doesn't keep up with inflation you will be worse off. If your income grows faster due to the high inflation you will have more money to put at the loan. There is no magic inflation correction.
Thank you for saying this. So much magical thinking about mortgages and inflation. A mortgage does not "protect" you from inflation. Rather, the burden of a mortgage is slightly reduced by an increase in inflation. Why would I voluntarily light $2K a month on fire for "debt service" and get excited about inflation effectively reducing it to $1.9k? Still lighting money on fire.
BogleFan510
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Re: How are you preparing for inflation and higher interest rates?

Post by BogleFan510 »

Own equities.
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max12377
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Re: How are you preparing for inflation and higher interest rates?

Post by max12377 »

ClevrChico wrote: Fri Jun 11, 2021 11:44 pm I'm preparing by not car or house shopping - that seems to be the main focus of the temporary (so far) inflation.

Other than that, I'm staying the course, following my IPS, and my asset allocation. With the strong equity returns, my new money has been flowing into bonds.
+1
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physixfan
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Re: How are you preparing for inflation and higher interest rates?

Post by physixfan »

Nate79 wrote: Sat Jun 12, 2021 3:09 pm
physixfan wrote: Sat Jun 12, 2021 2:15 pm Getting a mortgage as big as possible. Locking in a low interest rate (<3%) for 30 years. Expecting the inflation to inflate the debt away.
How do you think inflation will inflate the debt away?
$1M today is a big debt, but if inflation is high and someday your annual salary becomes $1M, then the debt (which is a fixed value) is really small in comparison. In the mean time the house price rises with inflation.
rockstar
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Re: How are you preparing for inflation and higher interest rates?

Post by rockstar »

physixfan wrote: Sat Jun 12, 2021 4:26 pm
Nate79 wrote: Sat Jun 12, 2021 3:09 pm
physixfan wrote: Sat Jun 12, 2021 2:15 pm Getting a mortgage as big as possible. Locking in a low interest rate (<3%) for 30 years. Expecting the inflation to inflate the debt away.
How do you think inflation will inflate the debt away?
$1M today is a big debt, but if inflation is high and someday your annual salary becomes $1M, then the debt (which is a fixed value) is really small in comparison. In the mean time the house price rises with inflation.
And this assumes you don't default by carrying too much debt.
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