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

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

Post by teelainen »

What are you currently holding besides gold, real estate, stocks, and crypto?

I have heard of some people buying small private businesses to act as a hedge against inflation and for extra diversification, but this doesn't seem passive.

Would love to hear what others are doing.
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JoMoney
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by JoMoney »

Cash, Series I Savings bonds, low-cost stock index funds
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham
SemiRetire
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by SemiRetire »

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

Post by unclescrooge »

Nothing beats inflation like stocks. Except maybe real estate.
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teelainen
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by teelainen »

JoMoney wrote: Mon Jul 19, 2021 10:55 pm Cash, Series I Savings bonds, low-cost stock index funds
Cash?
TurtleBeatsHare
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by TurtleBeatsHare »

Commodities or companies that produce/extract commodities/raw materials/industrials are oftentimes a decent inflation hedge as well, particularly if the commodity is used in consumer non-discretionary goods or goods that tend to be a substitute for more expensive goods. So...chicken for example is a great inflation commodity because people substitute out of more expensive meats into chicken and a fairly significant amount of its pricing is on the spot market vs. contract (which means less sticky prices), although that might be changing some now that the Georgia Dock fiasco is a few years behind us. Unlike gold or crypto (which I more or less view as essentially holding a different currency), commodity companies are creating economic value and therefore I tend to think are less dependent upon timing/human psychology in their valuation.

I haven't looked at the correlation research recently, but recall there being mixed evidence about real estate. Like any asset, it tends to appreciate with inflation, but inflation can influence the type of real estate that people consume (rental vs owning) and rental income (assuming you rent) is slightly sticky with leases often being a year (in residential) or longer (commercial). And while asset prices tend to increase with inflation, the typical policy response to inflation is an increase in interest rates on mortgages, which reduces the number of potential buyers and the amount that buyers can afford. And inflation oftentimes reduces disposable income further by increasing the price of other goods oftentimes faster than quite sticky wages, which can reduce the ability to meet a downpayment or the percentage of income available for mortgage financing.

I tend to think international diversification/currency diversification is one of the better ways to hedge against inflation because inflation is oftentimes caused by/associated with/causes dollar devaluation, although I admit that the correlations (according to Vanguard's research) between US and international equities have increased over time. I haven't looked at a comparable analysis for bonds and so haven't formed an opinion whether this means that internal diversification is less likely to be a hedge against inflation, whether inflation is less associated with currency movement generally, or whether it means that domestic equities are providing more of a hedge than they used to (I suspect the latter, but that's another topic).

Edit: I'm surprised no one mentioned it above, but TIPS, obviously. I'm not a fan since I'm young enough that I'm not really in the bond market, but if I were closer to retirement, TIPS are sort of the inflation-hedge by definition. I don't really see I bonds as a viable inflation hedge for most investors, given the annual purchase limit, because to accumulate enough of them, you'll have to begin buying them far too early, which overweights the inflation hedge portion of the portfolio earlier in a lifecycle. I also dislike the minimum holding period and lack of a secondary market because usually you'll want your most liquid assets to be the most inflation hedged.
NiceUnparticularMan
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by NiceUnparticularMan »

As always I think this Vanguard white paper on unexpected inflation is well worth reading:

https://advisors.vanguard.com/insights/ ... PSCmbtInfl

Part of the point they make is while some sorts of assets are OK at protecting themselves from unexpected inflation, they are unlikely to do much at a portfolio level, due to what they call the typical Beta of these assets (the scale of the response to unexpected inflation). Short-term TIPS are a good example--the responsiveness to unexpected inflation is guaranteed, but then it is also fixed in scale. The one high-beta exception they found was diversified commodities futures:

Image

Anyway, personally, we have a very small allocation to diversified commodities futures as part of a Real Return fund that also holds TIPS and global real estate. But it is only 7% in that fund to begin with, and then the commodities futures part is 20%, so that is a whopping 1.4%.

Really, our main approaches to dealing with the possibility of unexpected inflation are as follows:

(1) We don't hold any nominal bonds, just things like a stable value fund, cash-balance pension, and eventually the TSP G Fund;
(2) We do hold some long-term fixed-rate debt (mortgage and student loans);
(3) We hold a decent percentage (40%) of our stock in ex-US;
(4) We hold some REIT-specific funds (targeting around 7-10% of overall portfolio value in light of REITs buried in other funds);
(5) Our US stock is value-tilted, and even more so our ex-US stock.

I think (1) is really critical because when trying to provide against unexpected inflation on a portfolio level, any nominal bonds are just digging the hole deeper before you can start climbing out, and then occupying funds that could be used as some sort of unexpected inflation play. Regular cash is just a very mild form of nominal bond, but things like a stable value fund, TSP G Fund, and at least our version of a cash-balance pension are interesting to the extent that since their returns are tied to the rates on longer bonds but they are guaranteed not to lose value in a rising rate environment, in theory they should do reasonably well in a persistent unexpected inflation scenario. But I note they haven't really been seriously tested in that sort of environment, and Vanguard didn't study them;

(2) I think is kinda overlooked, but quite obvious in some sense because it is really just the same logic as with nominal bonds. Of course you have to watch out for the risk of correlated unexpected inflation and an economic climate that might risk your ability to make debt payments (even if they are declining in real value).

(3) and (4) are addressed in the white paper. Again there is no particular reason to believe these strategies will do a lot to help outside themselves, but to the extent you can actually do them at significant scale, you are helping avoid a big hole at least. And in fact on average they are at least mildly on the good side of US stocks when it comes to unexpected inflation (on average). I also note the specific scenario where ex-US versus US might help most is if unexpected inflation in USD terms is at least partially caused by relative USD devaluation--in other words, ex-US is a currency hedge.

(5) is back to something not discussed in the white paper, but there is evidence value stocks tend to overperform in periods of persistent unexpected inflation, which makes some basic economic sense. I have no particular proof of this, but it also makes sense to me it would be particularly efficient to do this with ex-US stock, as then you are layering your currency hedge on top of any sort of value effect. Again, I am not sure this is really going to do a lot outside of protecting the assets themselves--I am imagining at most they push a bit farther out away from untilted-US equities than REITs/untilted ex-US--but to the extent you are comfortable holding them at higher percentages, that means you need less "Beta" to have portfolio level effects.

So that's what we do. The white paper makes it pretty clear why free-floating gold isn't a very helpful idea, and I for one don't want to risk the sort of massive real losses a speculative (mostly non-productive) asset like free-floating gold exposes you too. Same but even more so with crypto.

In fact if I really wanted a naked USD-devaluation play, I'd just buy one. But I think a lot of ex-US investing, particularly with a value tilt, is likely a more efficient way to do that anyway.
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fredflinstone
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by fredflinstone »

I hold TIPS, stocks, and gold.
Stocks 28 / Gold 23 / Long-term US treasuries 19 / Cash (mainly CDs) 22 / TIPS 8
Da5id
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by Da5id »

TIPS and eventually social security (CPI indexed).

I also have real estate and stocks of those on your original list.
dcabler
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by dcabler »

I hold TIPs and Ibonds for a future COLA'd income stream that will augment SS when I'm 70. While it's true that it's part of my portfolio, the amount there is specifically to provide a certain dollar amount of income stream for 15 years. It is never rebalanced into or out of anything else I hold.

The rest is held in a fixed AA stock/nominal bond which is rebalanced to a pre-determined AA, when needed.

Cheers.
UpperNwGuy
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by UpperNwGuy »

Stocks are the best inflation hedge. I hold total US market and an international stock fund.
NiceUnparticularMan
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by NiceUnparticularMan »

Da5id wrote: Tue Jul 20, 2021 5:07 am TIPS and eventually social security (CPI indexed).
Social Security is a good one. Again it only covers itself, but you can juice that with deferring, and generally the amount of income it provides is consistent with a quite large asset allocation. Like as in if CPI-adjusted SPIAs even existed anymore, it would take a lot to buy one equivalent to Social Security, particularly at current rates.
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by bobcat2 »

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
Last edited by bobcat2 on Tue Jul 20, 2021 10:54 am, edited 1 time in total.
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by UpsetRaptor »

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

Post by Valuethinker »

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 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
You have greater credibility as a poster than I do here.

But this is a point that I reiterate every time this discussion comes up, and I get dissed every time.

My own sense is that when inflation is *increasing* (and therefore is more likely to be unexpected) then stocks perform poorly.

However when inflation is *decreasing* (and therefore likely to be lower than expectations) that the reverse can be true.

Thinking the long underperformance of stocks up to 1981 and then their stellar performance through the disinflation of the 1980s and 90s.
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by hudson »

teelainen wrote: Mon Jul 19, 2021 10:51 pm What are you currently holding besides gold, real estate, stocks, and crypto?

I have heard of some people buying small private businesses to act as a hedge against inflation and for extra diversification, but this doesn't seem passive.

Would love to hear what others are doing.
Holding gold, real estate, stocks, crypto? no...zero for all. I might warm up to a bag of pre-64 silver dimes, but probably not.
Best inflation hedge? TIPS and I-Bonds
Buying a small business? As a retiree, If I was running out of money, I would certainly consider doing that. I would rather go to work for somebody else. I probably wouldn't go in that direction as an inflation hedge. It would be a survival decision.
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by surfstar »

UpsetRaptor wrote: Tue Jul 20, 2021 10:44 am A mortgage
:sharebeer

2.5% 30 yr mortgage

1.24% 65 month new car loan
carguyny
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by carguyny »

Historically speaking - Gold is one of the worst performing commodities during above average and rising inflation. The run up in Gold is normally anticipatory and demand falls during the rising inflation. The other bottom two are Cocoa and Feeder Cattle.

The best performing are Iron Ore, Soybean Oil and RBOB Gasoline.

Using imperfect proxies you can see YTD performance pulled rough numbers on some ETFS:
SLX (Steel ETF as a proxy for Iron Ore): +35.52%
UGA ETN (Gasoline): +48.35%
SOYO.LN (Wisdomtree Soybean Oil): +72.64%

IAU (Gold): -3.66%
NIB (Cocoa): -9.07%
COW (Livestone ETF): +8.45%

Comes down to how complicated you want to get, but essentially the high performing commodities are staples and the worst performing are luxury items. Steak demand goes down vs Bread/Cereal demand that Soybean Oil is used for.

I can trade the futures myself as I started my career as a commodity trader, but you need to manage the roll etc if you want to be active on this side.

A potential way to do it might be pick up some SLX exposure as an example and reduce gold. Or just go with a more index approach and pick up DBC or one of the other commodity ETFs.

Again, go with what you would do per an IPS that says if Inflation is above average I do XXXX. When inflation is back or below at long term average and real yields are rising I do YYYY. Or I do nothing regardless of inflation.
engineeronfire
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by engineeronfire »

The vanguard paper clearly shows that the asset classes that are valid inflation hedges only works in short term, probably because inflation tend to be short term. Remember 10 year is pretty short for investing purposes. And equities is still the best long term investment.
So I like Christine Benz's bucket approach. For retirees or near retirees, instead of % of total assets for inflation hedge, I just have some TIPS, cash and short term investment grade for ~3 year worth of expenses, then simple BND and BNDX for the next 5 years expenses. The rest goes to US and ex-US equities.
Anything short term supposed to be the ballast that are stable, the few effective short term inflation hedges are volatile, so I see no point of holding them in my portfolio.
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by Aged Maduro »

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

Post by BeansAndPotatoes »

The Rational Reminder podcast recently had a great episode on this topic:
https://rationalreminder.ca/podcast/150
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by ImUrHuckleberry »

teelainen wrote: Tue Jul 20, 2021 12:59 am
JoMoney wrote: Mon Jul 19, 2021 10:55 pm Cash, Series I Savings bonds, low-cost stock index funds
Cash?
I had the same reaction.
UpperNwGuy
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by UpperNwGuy »

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
As a practical matter, government pensions and the TSP are not available options to the average board member, nor is Social Security if under the age of eligibility. That leaves TIPS and I-Bonds as the only universally available means on your list. Those are fairly limited options, so many of us will turn to equities, whether they are correlated or not.
NiceUnparticularMan
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by NiceUnparticularMan »

UpperNwGuy wrote: Tue Jul 20, 2021 1:27 pm
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
As a practical matter, government pensions and the TSP are not available options to the average board member, nor is Social Security if under the age of eligibility. That leaves TIPS and I-Bonds as the only universally available means on your list. Those are fairly limited options, so many of us will turn to equities, whether they are correlated or not.
So interestingly, the correlation between US equities and unexpected inflation has changed direction in different periods, and therefore the overall result depends on the study period in question.

However, what did not change so much is that REITs and ex-US equities were in a better direction by this measure, although in one study period that just took them from negative for US equities to right around neutral. Again, I would like to believe value-tilted ex-US equities would take you a little farther out still.
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by bobcat2 »

Here's how stocks hedged inflation risk during the two decades of US high inflation in the 20th century.

One of the two decades is the much discussed 1970-79 period. The other is the decade 1910-19. The inflation during the earlier 1910-19 period is mainly associated with WWI. Inflation accelerated beginning in either late 1915 or early 1916 along with the country's military buildup, particularly the buildup of both war and commercial ship building in east coast major port areas such as Philadelphia.

Annual avg inflation rate for the two decades (CPI)

Code: Select all

1910-19  7.3%
1970-79  7.4%
Annual avg real stock returns for the two decades

Code: Select all

1910-19   -2.6%
1970-79   -0.7%
For the US in the 20th century there were these two calendar decades of high inflation and real stock returns were miserable in both decades. I don't see much inflation hedging in these results. Do you?

Data source: Triumph of the Optimists

Annual CPI Inflation (Dec/Dec)

Code: Select all

1915     2.0%
1916    12.6%
1917    18.1%
1918    20.4%  
1919    14.5%
1920     2.6% 

Links to annual CPI data
- https://www.bls.gov/cpi/tables/historic ... 201709.pdf
and
- https://inflationdata.com/articles/infl ... 1913-1919/

BobK
Last edited by bobcat2 on Tue Jul 20, 2021 2:48 pm, edited 1 time in total.
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by tacobellcow »

Low cost index funds, savings bond, real estate, and a very small amount of crypto just for fund.
gougou
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by gougou »

Oil & gas pipeline MLPs and royalty MLPs. Iron ore miners. REITs. Homebuilers. Plus some hedged and leveraged portfolio of stocks to take advantage of margin rates at around 0.6%.
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by Lynx310650 »

For those of us who aren't in a position to buy physical real estate anytime soon, would REITs be a decent alternative as an inflation hedge?
NiceUnparticularMan
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by NiceUnparticularMan »

Lynx310650 wrote: Tue Jul 20, 2021 5:33 pm For those of us who aren't in a position to buy physical real estate anytime soon, would REITs be a decent alternative as an inflation hedge?
REITs tend to converge on leveraged real estate returns in the long run (as one would expect), with more volatility in the short-to-medium term. With respect to dealing with unexpected inflation, maybe a bit better than US equities, around the same as ex-US equities, worse than short-term TIPS. Again they probably converge on real estate better in the long run.

ex-US real estate might be a bit more effective, but not all countries have a REIT-like structure available, so generally such funds also include real estate related company stocks. Still, since ex-US stock in general is about as effective of an unexpected inflation hedge as US REITs, ex-US real estate stocks might be a step further out.

Of course a lot of this will just be a form of currency hedge, but again that is a non-trivial component of possible USD unexpected inflation.
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by Godot »

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
Thanks for this. The relentless harping on stocks as an inflation hedge on BH has always confused me.
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ckangas
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by ckangas »

Godot wrote: Tue Jul 20, 2021 8:25 pm
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
Thanks for this. The relentless harping on stocks as an inflation hedge on BH has always confused me.
To be fair, value stocks (well, companies with lots of debt at a fixed rate) and financial stocks are typically recommended as a hedge in high/very high inflation periods.
At least as far as what I've encountered, the standard opinion is that stocks are a reasonable inflation hedge in periods of moderate inflation, but generally suffer in periods of high inflation.
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by finite_difference »

unclescrooge wrote: Mon Jul 19, 2021 11:32 pm Nothing beats inflation like stocks. Except maybe real estate.
30-year mortgage @ 2 to 3% nominal. Bring on the 3% inflation so the rate becomes 0 to -1% real.
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finite_difference
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by finite_difference »

teelainen wrote: Mon Jul 19, 2021 10:51 pm What are you currently holding besides gold, real estate, stocks, and crypto?

I have heard of some people buying small private businesses to act as a hedge against inflation and for extra diversification, but this doesn't seem passive.

Would love to hear what others are doing.
A job. A nominal fixed-rate 30-year mortgage. Intl stocks.
The most precious gift we can offer anyone is our attention. - Thich Nhat Hanh
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by ScubaHogg »

bobcat2 wrote: Tue Jul 20, 2021 2:24 pm Here's how stocks hedged inflation risk during the two decades of US high inflation in the 20th century.

One of the two decades is the much discussed 1970-79 period. The other is the decade 1910-19. The inflation during the earlier 1910-19 period is mainly associated with WWI. Inflation accelerated beginning in either late 1915 or early 1916 along with the country's military buildup, particularly the buildup of both war and commercial ship building in east coast major port areas such as Philadelphia.

Annual avg inflation rate for the two decades (CPI)

Code: Select all

1910-19  7.3%
1970-79  7.4%
Annual avg real stock returns for the two decades

Code: Select all

1910-19   -2.6%
1970-79   -0.7%
For the US in the 20th century there were these two calendar decades of high inflation and real stock returns were miserable in both decades. I don't see much inflation hedging in these results. Do you?

Data source: Triumph of the Optimists

Annual CPI Inflation (Dec/Dec)

Code: Select all

1915     2.0%
1916    12.6%
1917    18.1%
1918    20.4%  
1919    14.5%
1920     2.6% 

Links to annual CPI data
- https://www.bls.gov/cpi/tables/historic ... 201709.pdf
and
- https://inflationdata.com/articles/infl ... 1913-1919/

BobK
Now do the stock returns for 1910-1929 and 1970-1989.

Stocks can be an inflation “hedge” in the sense that over a decently long time frame I’m not at all worried about a permanent equity capital loss due to inflation. Can’t say the same about nominal bonds.

Here is what William Bernstein had to say on the topic in his book Deep Risk:
over the long term, stocks, although suffering from inflation in the short term, protect against it in the long run. Put another way, stocks protect against deep risk, but exacerbate shallow risk.
“The purpose of the margin of safety is to render the forecast unnecessary.” - Ben Graham
invest4
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by invest4 »

Mortgage - 30 year @2.625. In my view, this was the most solid and well understood inflation hedge for me.

New funds that would have been allocated to bonds are now directed to stable value (2%) in my 401k.

I am 20% international stocks.

I keep looking at TIPS...but thus far has not been compelling enough to stake a position (had considered it as a replacement for BNDX which 20% of my bonds)

Real-estate, crypto, and gold hold no interest for me for various reasons which are regularly discussed (additional complexity, speculation, etc.).

I-Bonds are a distraction and perceived hassle for me which requires a long term commitment to build up a significant amount.
halfnine
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by halfnine »

finite_difference wrote: Tue Jul 20, 2021 10:38 pm
unclescrooge wrote: Mon Jul 19, 2021 11:32 pm Nothing beats inflation like stocks. Except maybe real estate.
30-year mortgage @ 2 to 3% nominal. Bring on the 3% inflation so the rate becomes 0 to -1% real.
You are missing that a home also pays a dividend in terms of imputed rent. Owning a home is also a direct hedge against rental inflation as while your payments stay constant over 30 years rents will likely triple over the same time frame.
JBTX
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by JBTX »

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
Thanks. I'm always skeptical of claims of stocks being an inflation hedge. Perhaps if it is purely an intentional expansion of money supply and modest consumer price inflation which would include not dramatically increasing interest rates. However if inflation is unwanted and higher than expected and fed steps in and materially bumps up rates that can pretty easily tank stocks, as a higher discount rate implies lower PES, and company earnings may not be able to keep up with inflation.
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by phantom0308 »

teelainen wrote: Mon Jul 19, 2021 10:51 pm What are you currently holding besides gold, real estate, stocks, and crypto?

I have heard of some people buying small private businesses to act as a hedge against inflation and for extra diversification, but this doesn't seem passive.

Would love to hear what others are doing.
Gold isn’t an inflation hedge historically. It doesn’t tend to perform better during high inflation or perform worse during low inflation. Unless you’re talking about centuries.
JBTX
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by JBTX »

teelainen wrote: Mon Jul 19, 2021 10:51 pm What are you currently holding besides gold, real estate, stocks, and crypto?

I have heard of some people buying small private businesses to act as a hedge against inflation and for extra diversification, but this doesn't seem passive.

Would love to hear what others are doing.
My $1000 fun money crypto account has gone from $1000 to $582 over the last few months. How is that for an inflation hedge?
typical.investor
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by typical.investor »

JBTX wrote: Wed Jul 21, 2021 1:12 am
teelainen wrote: Mon Jul 19, 2021 10:51 pm What are you currently holding besides gold, real estate, stocks, and crypto?

I have heard of some people buying small private businesses to act as a hedge against inflation and for extra diversification, but this doesn't seem passive.

Would love to hear what others are doing.
My $1000 fun money crypto account has gone from $1000 to $582 over the last few months. How is that for an inflation hedge?
Well without commenting on specific individual inflation hedges, in general isn’t the market concerned more about lack of growth?

I’m not sure that inflation is being perceived as a huge risk now and wouldn’t expect hedges to do real well.
JBTX
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by JBTX »

typical.investor wrote: Wed Jul 21, 2021 1:32 am
JBTX wrote: Wed Jul 21, 2021 1:12 am
teelainen wrote: Mon Jul 19, 2021 10:51 pm What are you currently holding besides gold, real estate, stocks, and crypto?

I have heard of some people buying small private businesses to act as a hedge against inflation and for extra diversification, but this doesn't seem passive.

Would love to hear what others are doing.
My $1000 fun money crypto account has gone from $1000 to $582 over the last few months. How is that for an inflation hedge?
Well without commenting on specific individual inflation hedges, in general isn’t the market concerned more about lack of growth?

I’m not sure that inflation is being perceived as a huge risk now and wouldn’t expect hedges to do real well.
Point being when an asset is so highly speculative and wildly volatile, whatever it's merits (or lack of them) inflation hedging isn't one of them.
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AerialWombat
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by AerialWombat »

teelainen wrote: Mon Jul 19, 2021 10:51 pm What are you currently holding besides gold, real estate, stocks, and crypto?
When you exclude the primary asset classes from the conversation, it’s a short discussion.
For entertainment purposes only.
SashaWalpole
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by SashaWalpole »

I'm surprised there's such a wild variety of opinions on this subject. I've always thought that the best inflation hedge one can have is undeniably a house on a 30 year fixed rate mortgage. Lets say that you put 20% down to buy a $200k house. Your down payment is $40k and your bank loan is $160k. Now lets say that the next year inflation comes along at 5%. Now your house is worth $210k. Your downpayment, monthly mortgage, and bank loan are all unaffected by the inflation. The extra $10k your house is now worth is added to your net worth, and represents a 25% return on your $40k downpayment.

Now lets say that this building is actually a rental property. That's even better. You can raise your tenant's rent by 5%, and all your expenses have gone up by 5% except for your mortgage. When your mortgage payment stays the same even as the dollar loses buying power, it's like the equivalent of getting a cheaper mortgage. When your bank loan stays the same even as the dollar loses buying power, it's like the equivalent of getting a reduction on your debt.

Even small increases in inflation will add up if they occur every year. I googled an inflation calculator and looked up how much a $200,000 purchase from 2011 would be worth now in 2021. The number it gave me was $241,573. That's the equivalent of only a 2% inflation rate compounded every year. As far as i can tell, inflation is one of the benefits that real estate has over stocks, and one of the benefits a 30 year fixed rate loan has over a 15 year.

I mean... unless there's something i'm missing here. This all seems pretty straight forward.
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corn18
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by corn18 »

UpsetRaptor wrote: Tue Jul 20, 2021 10:44 am A mortgage
Yup. Just refi'd to 2.25% 30 year fixed on a $500k mortgage. With the 10 year breakeven rate @ 2.26%, I'm making money. 4% inflation would not bug me one bit.

I am 55, retired, with a COLA pension and free health care for life. Once SS kicks in, I don't need any. more savings.
Don't do something, just stand there!
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by SuzBanyan »

corn18 wrote: Wed Jul 21, 2021 8:16 am
UpsetRaptor wrote: Tue Jul 20, 2021 10:44 am A mortgage
Yup. Just refi'd to 2.25% 30 year fixed on a $500k mortgage. With the 10 year breakeven rate @ 2.26%, I'm making money. 4% inflation would not bug me one bit.

I am 55, retired, with a COLA pension and free health care for life. Once SS kicks in, I don't need any. more savings.
While a personal mortgage might be a good hedge against your personal inflation, historically wasn’t a hedge on a macro level. This is because: “Mortgage interest payments were, until 1983, included in the most-used inflation measure, meaning that when the Fed responded to inflation by raising interest rates — and that policy change in turn caused mortgage rates to rise — this change all on its own increased measured inflation.” https://www.vox.com/future-perfect/2257 ... al-reserve
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by dknightd »

A fixed rate mortgage, or other low interest debt, is a great hedge. So is having a job.
I do not have either! Wish me luck!
If you value a bird in the hand, pay off the loan. If you are willing to risk getting two birds from the market, invest the funds. Retired 9/19. Mortgage payed off 5/21. I have some 0% loans to pay off.
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by bobcat2 »

dknightd wrote: Wed Jul 21, 2021 9:15 am A fixed rate mortgage, or other low interest debt, is a great hedge. So is having a job.
I do not have either! Wish me luck!
:thumbsup :thumbsup
Owning your abode with a low fixed rate mortgage or a paid off mortgage, instead of renting, is a great inflation hedge for everyone. For those of working age having a paycheck is a great inflation hedge. What you don't want to be when of working age during high inflation is unemployed and renting. :(

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In finance risk is defined as uncertainty that is consequential (nontrivial). | The two main methods of dealing with financial risk are the matching of assets to goals & diversifying.
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by Whakamole »

Housing prices are sky high around here, so it's a bit difficult to bite into the 30 year mortgage bullet when townhomes with long commute times are going for $700k+.
Lynx310650
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by Lynx310650 »

Whakamole wrote: Wed Jul 21, 2021 10:30 am Housing prices are sky high around here, so it's a bit difficult to bite into the 30 year mortgage bullet when townhomes with long commute times are going for $700k+.
I wish a decent townhome was only $700k around here. :(
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Re: Best inflation hedge besides gold, real estate, stocks, and crypto

Post by AlwaysLearningMore »

unclescrooge wrote: Mon Jul 19, 2021 11:32 pm Nothing beats inflation like stocks. Except maybe real estate.
UpperNwGuy wrote: Tue Jul 20, 2021 6:17 am Stocks are the best inflation hedge. I hold total US market and an international stock fund.
"It is no longer a secret that stocks, like bonds, do poorly in an inflationary environment."

" For many years, the conventional wisdom insisted that stocks were a hedge against inflation. The proposition was rooted in the fact that stocks are not claims against dollars, as bonds are, but represent ownership of companies with productive facilities. These, investors believed, would retain their Value in real terms, let the politicians print money as they might."

"Stocks... are perpetual. They have a maturity date of infinity. Investors in stocks are stuck with whatever return corporate America happens to earn."

"Which brings us to the crucial question – the inflation rate. No one knows the answer on this one – including the politicians, economists, and Establishment pundits, who felt, a few years back, that with slight nudges here and there unemployment and inflation rates would respond like trained seals."

Warren Buffett How Inflation Swindles the Equity Investor https://tinyurl.com/yedukq8j
Retirement is best when you have a lot to live on, and a lot to live for.
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