Keeping up with inflation

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teddytimtam
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Keeping up with inflation

Post by teddytimtam » Tue Jun 26, 2018 5:37 pm

Where do you keep funds to keep up with inflation?

Money Market?
Bonds?
Stock index?
Etc.

According to latest CPI, index increased 2.8% over the last 12 months.

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willthrill81
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Re: Keeping up with inflation

Post by willthrill81 » Tue Jun 26, 2018 5:45 pm

TIPS are guaranteed to keep pace with inflation plus offer a small real return in addition.

Historically, stocks are the best long-term hedge against inflation.

Treasury bills should not be dismissed either. If I recall, only once in the last 50 years have they lagged inflation by more than 1% for any significant length of time.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

JBTX
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Re: Keeping up with inflation

Post by JBTX » Tue Jun 26, 2018 7:51 pm

In the 70s small caps and REITS did well. No guarantee they will do as well this time around.

boglerdude
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Re: Keeping up with inflation

Post by boglerdude » Wed Jun 27, 2018 4:10 am

House

Be a university administrator

visualguy
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Re: Keeping up with inflation

Post by visualguy » Wed Jun 27, 2018 5:36 am

Direct real estate typically keeps up with inflation nicely after taxes. Also, stock most likely in the long run. Fixed income loses to inflation post tax.

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Re: Keeping up with inflation

Post by z3r0c00l » Wed Jun 27, 2018 5:39 am

I-bonds. Just about the only 100% safe investment that is guaranteed to keep pace, or nearly so, with inflation year in, year out. Liquid after 1 year, no penalty after 5. And they won't lose nominal value in the event of deflation either.

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Blueskies123
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Re: Keeping up with inflation

Post by Blueskies123 » Wed Jun 27, 2018 7:04 am

willthrill81 wrote:
Tue Jun 26, 2018 5:45 pm
TIPS are guaranteed to keep pace with inflation plus offer a small real return in addition.

Historically, stocks are the best long-term hedge against inflation.

Treasury bills should not be dismissed either. If I recall, only once in the last 50 years have they lagged inflation by more than 1% for any significant length of time.
For the new people, this does not mean they have no interest rate risk. These bonds can go down in a rising rate environment where inflation is below staying below the rising interest rate.

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Top99%
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Re: Keeping up with inflation

Post by Top99% » Wed Jun 27, 2018 7:12 am

First I think you need to define what inflation means to you:
1) Inflation as measured by the CPI
2) inflation in the price of the basket of goods and services that matter to you.

For 1), Social Security and TIPS work. A CD ladder or intermediate term nominal bonds can also work provide the CPI doesn't suddenly spike ala the late 1970s in the US. For 2),I am counting on my overall portfolio of CDs, Bonds, Stocks and Alternatives plus being very conservative.
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teddytimtam
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Re: Keeping up with inflation

Post by teddytimtam » Wed Jun 27, 2018 7:24 am

Basically, what's the best recommendation of fund/place to put an emergency fund to keep up with inflation. Example, obviously a $30k e-fund will not have the same buying power in 5 years from now. Just want to equalize the buying power.

dalmatiandan
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Re: Keeping up with inflation

Post by dalmatiandan » Wed Jun 27, 2018 7:51 am

teddytimtam wrote:
Wed Jun 27, 2018 7:24 am
Basically, what's the best recommendation of fund/place to put an emergency fund to keep up with inflation. Example, obviously a $30k e-fund will not have the same buying power in 5 years from now. Just want to equalize the buying power.
My goal is to slowly move my emergency fund completely into I Bonds, so I never have to look at it or worry about it.

Right now, we have checking, savings, a very small taxable position, I Bonds, and his/hers Roth short-term bond funds.

Dan

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randomizer
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Re: Keeping up with inflation

Post by randomizer » Wed Jun 27, 2018 7:53 am

Stocks plus fixed-rate mortgage.
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sabtastic
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Re: Keeping up with inflation

Post by sabtastic » Wed Jun 27, 2018 8:03 am

If it is for an emergency fund, then it has to be fairly liquid, so that limits your options. For us, that is a savings account at a local credit union. It doesn't pay much, but I can walk down the street and have cash in my hands. Few investment options allow you to do this. We are currently saving our down payment for a house in VMMXX which is paying 2% (still below inflation as was aptly pointed out in another thread :mrgreen: ). For me personally, this would be in VTSAX since we don't need the money and the savings horizon is years, but DW is not as comfortable with risk.

There have been a lot of creative ideas on the forum regarding emergency funds if you search. It all depends on your available resources and how quickly you will need the $$. We consider an emergency as needing cash or cashier's check immediately. For others, a few day's wait is acceptable. The longer you can wait, the less liquid you have to be.

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AtlasShrugged?
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Re: Keeping up with inflation

Post by AtlasShrugged? » Wed Jun 27, 2018 8:08 am

Top99% nailed this one. What do you mean by inflation?

In recent years, I have relied less and less on CPI, and more and more on my 'personal rate of inflation' which I can tell you is a hell of a lot higher than CPI. For instance, my healthcare premiums are way up more than CPI since 2010. So is my OOP cost for biologics. With kids in college during this time, tuition inflation was just absurdly high. These two examples pushed my 'personal inflation rate' well above 6%.

Maybe there are others who have low rates of personal inflation that match or are lower than CPI. But man, I have yet to meet those people. The way my family has addressed our inflation rate is to cut expenses (no cable TV, in fact no TV at all), Aldi's instead of Wegman's, keeping cars instead of replacing them (cars are 9 and 18 years old), stepping down in healthcare coverage, paying cash where possible, and add income (I work a P/T job weekends and evenings).

On the investment side, I have a significantly higher risk profile (78% equities at age 52). I know it is risky. Mathematically, a higher equity allocation over the long haul (decades) is the best inflation hedge I know of.
“If you don't know, the thing to do is not to get scared, but to learn.”

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Re: Keeping up with inflation

Post by Call_Me_Op » Wed Jun 27, 2018 8:17 am

Balanced portfolio
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Hyperborea
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Re: Keeping up with inflation

Post by Hyperborea » Wed Jun 27, 2018 8:38 am

If it's for the emergency fund, then as has been said above, keep it reasonably liquid. You aren't looking to keep up with inflation but to have the money stay at some benchmark for your life. If that $30K is 3/6/12 months of living costs then you want that money to stay at that level. If your living costs for that time period go up irrespective of official inflation rates then to keep the same level of security you will need to add money to the emergency fund. At some level of investment portfolio size you may decide that you don't want to increase the emergency fund any more.
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Engineer250
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Re: Keeping up with inflation

Post by Engineer250 » Wed Jun 27, 2018 8:46 am

I was wondering if anyone knows,

Are Vanguard's treasury funds treated the same tax-wise as buying individual treasuries? Let's say I want the tax break of buying treasuries. Can I just buy one of the funds and it will be treated the same?
Where the tides of fortune take us, no man can know.

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welderwannabe
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Re: Keeping up with inflation

Post by welderwannabe » Wed Jun 27, 2018 8:51 am

Engineer250 wrote:
Wed Jun 27, 2018 8:46 am
I was wondering if anyone knows,

Are Vanguard's treasury funds treated the same tax-wise as buying individual treasuries? Let's say I want the tax break of buying treasuries. Can I just buy one of the funds and it will be treated the same?
You will have to check on the rules in your specific state, but in generally the answer is yes.

Vanguard has a PDF on their website they publish every year that lists the percentage of direct US obligations on a fund by fund basis. If memory serves, some states require at least 50% for you to be able to take any deduction. However since the Treasury fund is 100% you should be all set.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

WhiteMaxima
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Re: Keeping up with inflation

Post by WhiteMaxima » Wed Jun 27, 2018 10:26 am

Stock+House

dbr
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Re: Keeping up with inflation

Post by dbr » Wed Jun 27, 2018 10:32 am

For the specific case of an E fund, building up a stash of I bonds might be a very good suggestion. They are CPI indexed, have no interest rate risk, after a little time are completely redeemable, and are tax deferred. The problem is annual purchase limit, redemption penalty and limits first year/five years, and the fact that after 30 years they no longer accrue interest and the tax comes due. One should think through this option for the case presented by the OP.

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willthrill81
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Re: Keeping up with inflation

Post by willthrill81 » Wed Jun 27, 2018 11:37 am

dbr wrote:
Wed Jun 27, 2018 10:32 am
For the specific case of an E fund, building up a stash of I bonds might be a very good suggestion. They are CPI indexed, have no interest rate risk, after a little time are completely redeemable, and are tax deferred. The problem is annual purchase limit, redemption penalty and limits first year/five years, and the fact that after 30 years they no longer accrue interest and the tax comes due. One should think through this option for the case presented by the OP.
Can you buy I bonds through tax-advantaged accounts?
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

dbr
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Re: Keeping up with inflation

Post by dbr » Wed Jun 27, 2018 11:40 am

willthrill81 wrote:
Wed Jun 27, 2018 11:37 am
dbr wrote:
Wed Jun 27, 2018 10:32 am
For the specific case of an E fund, building up a stash of I bonds might be a very good suggestion. They are CPI indexed, have no interest rate risk, after a little time are completely redeemable, and are tax deferred. The problem is annual purchase limit, redemption penalty and limits first year/five years, and the fact that after 30 years they no longer accrue interest and the tax comes due. One should think through this option for the case presented by the OP.
Can you buy I bonds through tax-advantaged accounts?
I don't think so as they have to be purchased at Treasury Direct and TD does offer tax advantaged accounts. Also I bonds are not marketable so there is no way for a broker to transact them.

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welderwannabe
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Re: Keeping up with inflation

Post by welderwannabe » Wed Jun 27, 2018 11:42 am

dbr wrote:
Wed Jun 27, 2018 11:40 am
I don't think so as they have to be purchased at Treasury Direct and TD does offer tax advantaged accounts. Also I bonds are not marketable so there is no way for a broker to transact them.
I assume you meant Treasury Direct does not offer tax advantaged accounts?
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

dbr
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Re: Keeping up with inflation

Post by dbr » Wed Jun 27, 2018 11:46 am

welderwannabe wrote:
Wed Jun 27, 2018 11:42 am
dbr wrote:
Wed Jun 27, 2018 11:40 am
I don't think so as they have to be purchased at Treasury Direct and TD does offer tax advantaged accounts. Also I bonds are not marketable so there is no way for a broker to transact them.
I assume you meant Treasury Direct does not offer tax advantaged accounts?
Yes

Engineer250
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Re: Keeping up with inflation

Post by Engineer250 » Wed Jun 27, 2018 12:04 pm

welderwannabe wrote:
Wed Jun 27, 2018 8:51 am
Engineer250 wrote:
Wed Jun 27, 2018 8:46 am
I was wondering if anyone knows,

Are Vanguard's treasury funds treated the same tax-wise as buying individual treasuries? Let's say I want the tax break of buying treasuries. Can I just buy one of the funds and it will be treated the same?
You will have to check on the rules in your specific state, but in generally the answer is yes.

Vanguard has a PDF on their website they publish every year that lists the percentage of direct US obligations on a fund by fund basis. If memory serves, some states require at least 50% for you to be able to take any deduction. However since the Treasury fund is 100% you should be all set.
Thank you so much for answering my question.

I'm in California and am interested in the VG CA tax exempt muni fund as part of a 2nd tier to my emergency fund but worry that it's too much of an "all eggs in one basket" approach and thought treasuries might be a good, safe investment to counterbalance any muni fund. I'm still mulling it all over, but your info helps me to find what I should be looking for and where.
Where the tides of fortune take us, no man can know.

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willthrill81
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Re: Keeping up with inflation

Post by willthrill81 » Wed Jun 27, 2018 4:32 pm

Blueskies123 wrote:
Wed Jun 27, 2018 7:04 am
willthrill81 wrote:
Tue Jun 26, 2018 5:45 pm
TIPS are guaranteed to keep pace with inflation plus offer a small real return in addition.

Historically, stocks are the best long-term hedge against inflation.

Treasury bills should not be dismissed either. If I recall, only once in the last 50 years have they lagged inflation by more than 1% for any significant length of time.
For the new people, this does not mean they have no interest rate risk. These bonds can go down in a rising rate environment where inflation is below staying below the rising interest rate.
I assume you're referring to TIPS. Between the point of purchase and redemption, TIPS have certainly shown themselves to be volatile as far as bond volatility goes. But if held to maturity, that intermediate volatility is irrelevant.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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