Hi! I'm high inflation. Nice to meet you.

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burritoLover
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Hi! I'm high inflation. Nice to meet you.

Post by burritoLover »

Seeing a lot of BHers making active portfolio changes based on current year's high inflation despite the numerous warnings littered throughout the BH philosophy about market timing and reacting to current economic conditions or future predictions.

Did you not realize that high inflation was a possibility when you constructed your portfolio? What if we actually see an extended period of low inflation and/or deflation - are you going to revert your portfolio changes or make new changes based on that environment?
"Your money is like a bar of soap. The more you handle it, the less you’ll have." - Gene Fama
sailaway
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Post by sailaway »

I lived through the 70s and 80s and have travelled extensively. My view of the current inflation rates is "You ain't seen nuthin' yet."
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steve r
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Post by steve r »

burritoLover wrote: Wed Nov 17, 2021 10:28 am ...
Did you not realize that high inflation was a possibility when you constructed your portfolio? What if we actually see an extended period of low inflation and/or deflation - are you going to revert your portfolio changes or make new changes based on that environment?
What I did not realize when I constructed my portfolio year ago is that real yield on safe treasuries could go negative. I did not realize that international bonds could have a negative nominal return.

Even if inflation is zero for ten years, the nominal return on ten year treasury is expected to generate a return of 7 or 8 percent over a five year period. Yawn.

The idea that bonds are strictly for safety is a market reality that is new, and one that would have been viewed as utter nonsense when treasuries paid 7 or 8 percent nominal per year.

Why? Primarily because of a flood in the money supply. Will this flood of money jack up prices of goods and services (as opposed to investment products)? IDK. But if it does, my buy and hold portfolio will be a loser. Every investment I own has benefited from easy money / ever lower interest rates.

It would be foolish to ignore market realities. While deflation is possible, it seems highly unlikely. OTOH, inflation hedges are (also) hugely expensive. TIPS anyone?
"It's much easier than most investors expect to get satisfactory investment returns and it is much more difficult than they expect to get better results than that." Benjamin Graham
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JupiterJones
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Post by JupiterJones »

sailaway wrote: Wed Nov 17, 2021 10:33 am I lived through the 70s and 80s and have travelled extensively. My view of the current inflation rates is "You ain't seen nuthin' yet."
Seriously. Inflation has been--up until now--so low over the past several decades, that there are probably many here who have never even seen sizable inflation occur during their investing years.
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aristotelian
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Post by aristotelian »

steve r wrote: Wed Nov 17, 2021 11:32 am It would be foolish to ignore market realities. While deflation is possible, it seems highly unlikely. OTOH, inflation hedges are (also) hugely expensive. TIPS anyone?
TIPS and Treasuries have the same risk and expected real return. The choice really depends on whether you are seeking inflation protection or protection against market crash. To the extent a market crash is likely deflationary, you are giving up some of that market hedge my moving from nominal Treasuries to TIPS. Since I am betting on equities to beat inflation on the equity side of the portfolio, I am more concerned with hedging against market crash on the bond side. If my portfolio were majority bonds I might feel differently.
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Post by dknightd »

burritoLover wrote: Wed Nov 17, 2021 10:28 am Seeing a lot of BHers making active portfolio changes based on current year's high inflation
Name one.
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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steve r
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Post by steve r »

aristotelian wrote: Wed Nov 17, 2021 11:57 am ...
Since I am betting on equities to beat inflation on the equity side of the portfolio, I am more concerned with hedging against market crash on the bond side. ...
I love this. I think this. Though, a word of caution. Per Simba data, the correlation between stocks and inflation has been a very low 0.14 between 1871 and today. Another word of caution is the 1973-1974 bear market which lost 45 percent in the U.S. (75 percent in the U.K.!) and concluded with 11 straight down days. Bonds also did very poorly then. This was a period of rising inflation, first largely attributed to an increase in the money supply (a modest one by today's standard) that gave way to inflation attributed to OPEC cutting back oil supplies in 1974. That scenario scares me.
"It's much easier than most investors expect to get satisfactory investment returns and it is much more difficult than they expect to get better results than that." Benjamin Graham
Marseille07
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Post by Marseille07 »

dknightd wrote: Wed Nov 17, 2021 12:02 pm
burritoLover wrote: Wed Nov 17, 2021 10:28 am Seeing a lot of BHers making active portfolio changes based on current year's high inflation
Name one.
I believe nedsaid would be one: viewtopic.php?f=10&t=362226
Last edited by Marseille07 on Wed Nov 17, 2021 12:07 pm, edited 1 time in total.
Seasonal
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Post by Seasonal »

I mainly considered that the market is better than me at pricing things. I also considered that essentially no one is good at estimating the odds of any future market or economic conditions.

I also noted that inflation is a zero sum game. For every extra dollar someone pays due to inflation, someone else is receiving an extra dollar. This is another area for which prediction is difficult, so I have a hard time predicting whether I will be helped or hurt by inflation.
dukeblue219
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Post by dukeblue219 »

Not everyone has the option, but I'm looking hard at moving all my retirement account bond investments (I'm 80/20) into TSP G fund to guard against a bond market rout. It's not really market timing so much as taking advantage of the tools at my disposal I think.

Otherwise I'm not overly worried about inflation.
Last edited by dukeblue219 on Wed Nov 17, 2021 2:17 pm, edited 1 time in total.
RickyGold
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Post by RickyGold »

aristotelian wrote: Wed Nov 17, 2021 11:57 am
steve r wrote: Wed Nov 17, 2021 11:32 am It would be foolish to ignore market realities. While deflation is possible, it seems highly unlikely. OTOH, inflation hedges are (also) hugely expensive. TIPS anyone?
TIPS and Treasuries have the same risk and expected real return. The choice really depends on whether you are seeking inflation protection or protection against market crash. To the extent a market crash is likely deflationary, you are giving up some of that market hedge my moving from nominal Treasuries to TIPS. Since I am betting on equities to beat inflation on the equity side of the portfolio, I am more concerned with hedging against market crash on the bond side. If my portfolio were majority bonds I might feel differently.
Agree...stocks are your inflation fighter and nominal bonds are your deflation fighter. Pick your asset allocation based on your risk tolerance, and stick with it.
dknightd
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Post by dknightd »

Marseille07 wrote: Wed Nov 17, 2021 12:06 pm
dknightd wrote: Wed Nov 17, 2021 12:02 pm
burritoLover wrote: Wed Nov 17, 2021 10:28 am Seeing a lot of BHers making active portfolio changes based on current year's high inflation
Name one.
I believe nedsaid would be one: viewtopic.php?f=10&t=362226
I'm not sure that had anything to do with inflation. I guess I should give it another read.
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.
Marseille07
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Post by Marseille07 »

dknightd wrote: Wed Nov 17, 2021 12:29 pm
Marseille07 wrote: Wed Nov 17, 2021 12:06 pm
dknightd wrote: Wed Nov 17, 2021 12:02 pm
burritoLover wrote: Wed Nov 17, 2021 10:28 am Seeing a lot of BHers making active portfolio changes based on current year's high inflation
Name one.
I believe nedsaid would be one: viewtopic.php?f=10&t=362226
I'm not sure that had anything to do with inflation. I guess I should give it another read.
It's in the very first post: "I have decided to suspend all Stock to Bond rebalancing until inflation pressures subside. It appears that "transitory" inflation isn't so transitory and will stick around for a while."

100% has to do with inflation.
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Godot
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Post by Godot »

steve r wrote: Wed Nov 17, 2021 12:03 pm
aristotelian wrote: Wed Nov 17, 2021 11:57 am ...
Since I am betting on equities to beat inflation on the equity side of the portfolio, I am more concerned with hedging against market crash on the bond side. ...
I love this. I think this. Though, a word of caution. Per Simba data, the correlation between stocks and inflation has been a very low 0.14 between 1871 and today. Another word of caution is the 1973-1974 bear market which lost 45 percent in the U.S. (75 percent in the U.K.!) and concluded with 11 straight down days. Bonds also did very poorly then. This was a period of rising inflation, first largely attributed to an increase in the money supply (a modest one by today's standard) that gave way to inflation attributed to OPEC cutting back oil supplies in 1974. That scenario scares me.
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ray.james
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Post by ray.james »

burritoLover wrote: Wed Nov 17, 2021 10:28 am Seeing a lot of BHers making active portfolio changes based on current year's high inflation despite the numerous warnings littered throughout the BH philosophy about market timing and reacting to current economic conditions or future predictions.

Did you not realize that high inflation was a possibility when you constructed your portfolio? What if we actually see an extended period of low inflation and/or deflation - are you going to revert your portfolio changes or make new changes based on that environment?
One thing I did not realize is the spread between yields and inflation can be this far apart. The longer this runs, it will be worse. In view of that I would see 60-40 a little differently...I guess the solution is not changing but adjusting returns expectations. Luckily I am an accumulator and not a retiree to worry about my 60-40 retirement allocation now.

Willthrill wrote a good post here: viewtopic.php?p=6323845#p6323845
When in doubt, http://www.bogleheads.org/forum/viewtopic.php?f=1&t=79939
sureshoe
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Post by sureshoe »

As debt levels increased and interest rates have nowhere to go but up, I have been more concerned about widespread, crippling deflation than inflation. That's where my random $5 is for "what causes the next economic meltdown." I did not, in fact, have pandemic-induced supply chain and resignation induced inflation.
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steve r
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Post by steve r »

Godot wrote: Wed Nov 17, 2021 12:31 pm
steve r wrote: Wed Nov 17, 2021 12:03 pm
aristotelian wrote: Wed Nov 17, 2021 11:57 am ...
Since I am betting on equities to beat inflation on the equity side of the portfolio, I am more concerned with hedging against market crash on the bond side. ...
I love this. I think this. Though, a word of caution. Per Simba data, the correlation between stocks and inflation has been a very low 0.14 between 1871 and today. Another word of caution is the 1973-1974 bear market which lost 45 percent in the U.S. (75 percent in the U.K.!) and concluded with 11 straight down days. Bonds also did very poorly then. This was a period of rising inflation, first largely attributed to an increase in the money supply (a modest one by today's standard) that gave way to inflation attributed to OPEC cutting back oil supplies in 1974. That scenario scares me.
What are you doing to treat your fear?
Good question. I "think" about what to do a lot. No real answers. I also read a lot of posts on this on BH.

What I did is small stuff.

A while ago, I did max out my TIAA Real Estate holdings (there is a limit what I can buy with existing account asses, though I can put all new contributions in). This is small stuff because I was already in this fund. Real estate should help diversify and potentially do well with inflation. FWIW, this is a direct real estate fund which is different than REITS because it has considerably less exposure to interest rates. They are not the same thing, but in a similar space.

I did lighten up bonds a little when rates were lower. Modest stuff. But this had more to do with rates low than inflation hedging. So a touch more TIAA RE and a touch less bonds.

One thing I did that is controversial on BH, is I paid of my house. The rate I was paying was higher than any thing bonds was paying me. IMHO a mortgage is not what hedges inflation, but rather the assets you buy with the loan that inflate. I get that you pay back the loan with cheaper dollars. I could buy a bigger house or second house with a mortgage, but no thank you to added expenses, maintenance, taxes, etc.

The one thing I am thinking about doing, but have not pulled the trigger is iBonds. $20,000 this year (maybe more if I max out my withholdings) and $25,000 next year. But this would also be small stuff and require me not to put as much in my tax deferred retirement account. That money is currently being piled into TIAA Real Estate, so it is a wash in my mind. It would also be yet another place my wealth is stored. I want to simplify things, not complicate things. I am very much on the fence on this one.

If you have comments or other suggestions, I am all ears.
"It's much easier than most investors expect to get satisfactory investment returns and it is much more difficult than they expect to get better results than that." Benjamin Graham
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Post by 3funder »

I believe Janet Yellen once said something about her being in the business of macroeconomic modeling for decades and almost never being right, while being incredibly wrong most of the time. I have US stocks, international stocks, and US bonds. I firmly believe there's nothing more I can do. I sleep well at night. There's little upside in searching for a better mousetrap, so to speak.
Global stocks, US bonds, and time.
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Post by JoeRetire »

burritoLover wrote: Wed Nov 17, 2021 10:28 am Seeing a lot of BHers making active portfolio changes based on current year's high inflation despite the numerous warnings littered throughout the BH philosophy about market timing and reacting to current economic conditions or future predictions.

Did you not realize that high inflation was a possibility when you constructed your portfolio? What if we actually see an extended period of low inflation and/or deflation - are you going to revert your portfolio changes or make new changes based on that environment?
This isn't a surprise. People react to the immediate conditions - both here and in the "real world".

When the headlines scream "Market hits new record", we get market-timing type questions about investing during the peak.
When the headlines talk about how long the bull market has lasted, we get questions asking if they should get out of the market before the crash.

And when headlines chatter about inflation, questions abound about how to beat inflation by investing, by buying years' worth of stuff, and by supermarket "deals".

People seem to quickly forget "stay the course" after being alarmed by the latest headlines.
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Post by Triple digit golfer »

I constructed my portfolio 14 years ago and my goal was to have a portfolio that has the potential to do well in all environments while having a positive expected return that is sufficient enough for me to meet my goals, all the while building up my "safe" money, i.e. 20% in bonds or cash. My logic was that as I get older, I get less employable (although who knows when that actually starts), closer to retirement, more expenses (family), and more to lose.

I am not going to change course on my 20% bond allocation just because they have an expected negative real return. They are there for the same reason as always. If holding 80% in stocks with a 40% savings rate (32% of gross salary going to stocks) doesn't allow me to meet my goals, it won't be because bond returns were bad.

80/20 global stocks/total bond and I plan on staying there until I have 25 years of expenses saved. I'm 60% of the way there and will not be changing course now.
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Post by Triple digit golfer »

JoeRetire wrote: Wed Nov 17, 2021 2:21 pm People seem to quickly forget "stay the course" after being alarmed by the latest headlines.
Indeed, and that's when they should be heeding that advice.
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Post by Derpalator »

dknightd wrote: Wed Nov 17, 2021 12:02 pm
burritoLover wrote: Wed Nov 17, 2021 10:28 am Seeing a lot of BHers making active portfolio changes based on current year's high inflation
Name one.
DW and I. But we just retired and always had planned at least 1/2 of our bonds to be inflation-linked anyway. :wink:
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Post by ImUrHuckleberry »

sailaway wrote: Wed Nov 17, 2021 10:33 am I lived through the 70s and 80s and have travelled extensively. My view of the current inflation rates is "You ain't seen nuthin' yet."
At least interest rates were also high back then. High inflation with negative yielding bonds seems worse to me. (Worse if it sticks around like this for years. No big deal if it's really transitory.)
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Post by rockstar »

When the economic environment changes, you need to change with it.

Bonds are not keeping up with inflation. The question you have to asks yourself is: do you want to take on interest rate risk by holding longer term bonds that don't keep up today with the Fed tapering?

I don't want to get 50-100bps more of yield with a whole lot more interest rate risk. If I was holding bonds, I'd stay on the short end of the curve.
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Post by UpperNwGuy »

rockstar wrote: Wed Nov 17, 2021 7:03 pm When the economic environment changes, you need to change with it.
I think that's bad advice.
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Post by Grt2bOutdoors »

dknightd wrote: Wed Nov 17, 2021 12:02 pm
burritoLover wrote: Wed Nov 17, 2021 10:28 am Seeing a lot of BHers making active portfolio changes based on current year's high inflation
Name one.
+1. Must be reading too much into those Series I mega thread posts.
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MindBogler
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Post by MindBogler »

Whistling past the graveyard...
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Post by Noobvestor »

steve r wrote: Wed Nov 17, 2021 11:32 am
The idea that bonds are strictly for safety is a market reality that is new, and one that would have been viewed as utter nonsense when treasuries paid 7 or 8 percent nominal per year.
Nominal being the operative word. In real-dollar terms, what were they paying? Why not add that number?!
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Post by dodecahedron »

Noobvestor wrote: Wed Nov 17, 2021 8:14 pm
steve r wrote: Wed Nov 17, 2021 11:32 am
The idea that bonds are strictly for safety is a market reality that is new, and one that would have been viewed as utter nonsense when treasuries paid 7 or 8 percent nominal per year.
Nominal being the operative word. In real-dollar terms, what were they paying? Why not add that number?!
Indeed, also take into account the real after-tax returns (at a time when IRAs and 401ks were not available and the top bracket was 70% applied to the nominal return.)
rockstar
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Post by rockstar »

dodecahedron wrote: Wed Nov 17, 2021 8:26 pm
Noobvestor wrote: Wed Nov 17, 2021 8:14 pm
steve r wrote: Wed Nov 17, 2021 11:32 am
The idea that bonds are strictly for safety is a market reality that is new, and one that would have been viewed as utter nonsense when treasuries paid 7 or 8 percent nominal per year.
Nominal being the operative word. In real-dollar terms, what were they paying? Why not add that number?!
Indeed, also take into account the real after-tax returns (at a time when IRAs and 401ks were not available and the top bracket was 70% applied to the nominal return.)
And taxes can go up in the future. What happens if you defer at 22% hoping to withdraw at 12% but then that 12% rate goes to 24%? What if taxes go up while in retirement?

The whole idea of tax deferring is challenging to me. I max out my 401k, but I have no clue what my taxes will be in the future. I have a taxable account as a hedge to help me sleep better, where I can pay taxes at the known rates today.

Trying to plan for retirement is hard. The best I can do is diversify my risks.
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Post by tomsense76 »

JoeRetire wrote: Wed Nov 17, 2021 2:21 pm
burritoLover wrote: Wed Nov 17, 2021 10:28 am Seeing a lot of BHers making active portfolio changes based on current year's high inflation despite the numerous warnings littered throughout the BH philosophy about market timing and reacting to current economic conditions or future predictions.

Did you not realize that high inflation was a possibility when you constructed your portfolio? What if we actually see an extended period of low inflation and/or deflation - are you going to revert your portfolio changes or make new changes based on that environment?
This isn't a surprise. People react to the immediate conditions - both here and in the "real world".

When the headlines scream "Market hits new record", we get market-timing type questions about investing during the peak.
When the headlines talk about how long the bull market has lasted, we get questions asking if they should get out of the market before the crash.

And when headlines chatter about inflation, questions abound about how to beat inflation by investing, by buying years' worth of stuff, and by supermarket "deals".

People seem to quickly forget "stay the course" after being alarmed by the latest headlines.
It's so true. Maybe we need to recommend more people keep investment journals.

Every time someone says I want to do X because of Y. We can say "great, please write that down in your investment journal and revisit in Z months/years."
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Post by jebmke »

ImUrHuckleberry wrote: Wed Nov 17, 2021 6:09 pm
sailaway wrote: Wed Nov 17, 2021 10:33 am I lived through the 70s and 80s and have travelled extensively. My view of the current inflation rates is "You ain't seen nuthin' yet."
At least interest rates were also high back then. High inflation with negative yielding bonds seems worse to me. (Worse if it sticks around like this for years. No big deal if it's really transitory.)
Given the number of threads started on inflation and the hair fires on Bloomberg Radio in the past couple of days we certainly must be about to turn the corner.
When you discover that you are riding a dead horse, the best strategy is to dismount.
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Post by MindBogler »

jebmke wrote: Wed Nov 17, 2021 8:58 pm
ImUrHuckleberry wrote: Wed Nov 17, 2021 6:09 pm
sailaway wrote: Wed Nov 17, 2021 10:33 am I lived through the 70s and 80s and have travelled extensively. My view of the current inflation rates is "You ain't seen nuthin' yet."
At least interest rates were also high back then. High inflation with negative yielding bonds seems worse to me. (Worse if it sticks around like this for years. No big deal if it's really transitory.)
Given the number of threads started on inflation and the hair fires on Bloomberg Radio in the past couple of days we certainly must be about to turn the corner.
I can't imagine we turn any corners until demand subsides, supply increases or the Fed has enough and raises rates earlier than anticipated.
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Post by bgf »

jebmke wrote: Wed Nov 17, 2021 8:58 pm
ImUrHuckleberry wrote: Wed Nov 17, 2021 6:09 pm
sailaway wrote: Wed Nov 17, 2021 10:33 am I lived through the 70s and 80s and have travelled extensively. My view of the current inflation rates is "You ain't seen nuthin' yet."
At least interest rates were also high back then. High inflation with negative yielding bonds seems worse to me. (Worse if it sticks around like this for years. No big deal if it's really transitory.)
Given the number of threads started on inflation and the hair fires on Bloomberg Radio in the past couple of days we certainly must be about to turn the corner.
If it weren't for these posts and the podcasts I listen to, I'd honestly have no idea.

It's funny, back when I bought my car, the problem was that there simply weren't enough cars. Now, we've apparently learned that the lack of cars back then was actually an illusion; the real culprit was fiscal policy induced automotive sector inflation.
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JBTX
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Post by JBTX »

burritoLover wrote: Wed Nov 17, 2021 10:28 am Seeing a lot of BHers making active portfolio changes based on current year's high inflation despite the numerous warnings littered throughout the BH philosophy about market timing and reacting to current economic conditions or future predictions.

Did you not realize that high inflation was a possibility when you constructed your portfolio? What if we actually see an extended period of low inflation and/or deflation - are you going to revert your portfolio changes or make new changes based on that environment?
Seems to me many here, perhaps most, didn’t believe inflation was possible.
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Post by RobLyons »

I've made zero changes.
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Post by Beensabu »

I am increasingly convinced that people construct their portfolios based on the current economic conditions and popular trends of whatever time they find themselves in, with bits and pieces of all available history used only to the extent that it confirms their decisions.
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Post by JBTX »

rockstar wrote: Wed Nov 17, 2021 7:03 pm When the economic environment changes, you need to change with it.

Bonds are not keeping up with inflation. The question you have to asks yourself is: do you want to take on interest rate risk by holding longer term bonds that don't keep up today with the Fed tapering?

I don't want to get 50-100bps more of yield with a whole lot more interest rate risk. If I was holding bonds, I'd stay on the short end of the curve.
This presupposes that you have better insight into the future than the broad markets. Perhaps you do, but if so you would be the rare exception.
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Re: Hi! I'm high inflation. Nice to meet you.

Post by Triple digit golfer »

Beensabu wrote: Wed Nov 17, 2021 9:30 pm I am increasingly convinced that people construct their portfolios based on the current economic conditions and popular trends of whatever time they find themselves in, with bits and pieces of all available history used only to the extent that it confirms their decisions.
No question. I believe people make up their minds and then seek confirmation for it.
rockstar
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Re: Hi! I'm high inflation. Nice to meet you.

Post by rockstar »

JBTX wrote: Wed Nov 17, 2021 9:32 pm
rockstar wrote: Wed Nov 17, 2021 7:03 pm When the economic environment changes, you need to change with it.

Bonds are not keeping up with inflation. The question you have to asks yourself is: do you want to take on interest rate risk by holding longer term bonds that don't keep up today with the Fed tapering?

I don't want to get 50-100bps more of yield with a whole lot more interest rate risk. If I was holding bonds, I'd stay on the short end of the curve.
This presupposes that you have better insight into the future than the broad markets. Perhaps you do, but if so you would be the rare exception.
What specifically does?
JBTX
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Re: Hi! I'm high inflation. Nice to meet you.

Post by JBTX »

aristotelian wrote: Wed Nov 17, 2021 11:57 am Since I am betting on equities to beat inflation on the equity side of the portfolio,
Over the long haul this is very likely true, but you have to hope that you aren’t retiring when inflation is high and the market is relatively lower.
Seasonal wrote: Wed Nov 17, 2021 12:07 pm I also noted that inflation is a zero sum game. For every extra dollar someone pays due to inflation, someone else is receiving an extra dollar.
While true, inflation is a high level economic drag. It is an added degree of risk that is not conducive to business. It is harder to plan. Consumers change their behaviors in reaction. Less stability overall. In a global market investment dollars may flow to a more stable environment.
RickyGold wrote: Wed Nov 17, 2021 12:12 pm .stocks are your inflation fighter
I understand the theory, if prices go up, earnings go up, stock price should go up, but…

- see the instability argument above
- inflation and inflation expectations aren’t stable. If everybody could bank on 5% inflation year after year then probably not a big deal. But when inflation goes from 2 to 5%, people don’t know if in the future it will be 2, 5 or 10%. After a while they will generally assume the worst.
- inflation is likely to go up, until it goes down. The various business and macroeconomic factors start the process, then expectations kick in and provide momentum, etc, until at some point policy makers step in which will likely mean higher interest rates, tighter money and economic downturn. Knowing that investors are going to be hesitant to go crazy on stocks knowing the punch bowl will be taken away.
- the 70s were generally not great for stocks on a real return basis.
- PEs are heavily influenced by interest rates, and PEs will eventually compress based upon expectation of higher rates due to inflation.
BernardShakey
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Re: Hi! I'm high inflation. Nice to meet you.

Post by BernardShakey »

MindBogler wrote: Wed Nov 17, 2021 9:10 pm
jebmke wrote: Wed Nov 17, 2021 8:58 pm
ImUrHuckleberry wrote: Wed Nov 17, 2021 6:09 pm
sailaway wrote: Wed Nov 17, 2021 10:33 am I lived through the 70s and 80s and have travelled extensively. My view of the current inflation rates is "You ain't seen nuthin' yet."
At least interest rates were also high back then. High inflation with negative yielding bonds seems worse to me. (Worse if it sticks around like this for years. No big deal if it's really transitory.)
Given the number of threads started on inflation and the hair fires on Bloomberg Radio in the past couple of days we certainly must be about to turn the corner.
I can't imagine we turn any corners until demand subsides, supply increases or the Fed has enough and raises rates earlier than anticipated.
Yeah, but those things should all happen in pretty short order. There is money to be made in increasing the supply and American / global ingenuity will make it come to pass. And demand will eventually subside as people spend through much of the money they saved up over the last 18 months. The Fed could easily raise rates in 2Q next year. If vaccination rates continue to climb, then come next summer it will all be in the rear view mirror. :wink:
An important key to investing is having a well-calibrated sense of your future regret.
jdamo
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Re: Hi! I'm high inflation. Nice to meet you.

Post by jdamo »

We graduated from college and started working in 1981. I remember high inflation back then. My wife's first car loan was 18.5%! It was terrible but needed a car. Young investors have never seen anything like that.
So inflation concerns me.

However, oil was ridiculously low priced earlier in the pandemic, far below replacement cost. Natural gas still is!
Now oil is probably near or at replacement cost... It may meet our growing energy needs....if investment returns....and without substantially more inflation.(?)
So, perhaps "oil" inflation will calm down 1Q 2022.

I still worry about all the money influx causing inflation with everything else.
Plus I read today (Judy Shelton Editorial today 11-17-2021 in the WSJ) Americans have lots of stimulus money still not spent and the the banks have huge commercial bank reserves held in depository accounts at the FED( exceed $4.1 T) that have not been lent out despite zero reserve requirements from the FED. So that may change.
The only possible change I have considered is to sell 10% VBTLX and increase my SP500 index fund allocation by 10%.

Nevertheless, I am studying and watching the data. Reading the forum reminds me to stick with the plan. Stick with my planned return vs risk taken.
I have decided to stick with my asset allocation in the 3-fund until I do my annual rebalance 2Q 2022.
I am staying the course since only in year 2 of a 30 year retirement (hopefully!) This may turn out to be a minor blip. :mrgreen:
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BrandonBogle
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Re: Hi! I'm high inflation. Nice to meet you.

Post by BrandonBogle »

JupiterJones wrote: Wed Nov 17, 2021 11:35 am
sailaway wrote: Wed Nov 17, 2021 10:33 am I lived through the 70s and 80s and have travelled extensively. My view of the current inflation rates is "You ain't seen nuthin' yet."
Seriously. Inflation has been--up until now--so low over the past several decades, that there are probably many here who have never even seen sizable inflation occur during their investing years.
I for one planned my portfolio to be acceptable with/without inflation or deflation, but I really haven’t seen sizable inflation during my investment career. Sure, I started in the 90s, but it was probably 2005-2010 when the portfolio would have grown enough for inflation effects to be noticeable. 2010 to now has been relatively low and stable inflation. I suspect others have had similar experiences.
000
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Re: Hi! I'm high inflation. Nice to meet you.

Post by 000 »

Beensabu wrote: Wed Nov 17, 2021 9:30 pm I am increasingly convinced that people construct their portfolios based on the current economic conditions and popular trends of whatever time they find themselves in, with bits and pieces of all available history used only to the extent that it confirms their decisions.
Time to start making contrarian plays?
Capitulation of bears is part of the market topping process.
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ApeAttack
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Re: Hi! I'm high inflation. Nice to meet you.

Post by ApeAttack »

JBTX wrote: Wed Nov 17, 2021 9:26 pm
burritoLover wrote: Wed Nov 17, 2021 10:28 am Seeing a lot of BHers making active portfolio changes based on current year's high inflation despite the numerous warnings littered throughout the BH philosophy about market timing and reacting to current economic conditions or future predictions.

Did you not realize that high inflation was a possibility when you constructed your portfolio? What if we actually see an extended period of low inflation and/or deflation - are you going to revert your portfolio changes or make new changes based on that environment?
Seems to me many here, perhaps most, didn’t believe inflation was possible.
I started learning the BH philosophy during the pandemic when I became fascinated by how no one (not even the people who make millions each year in finance) seemed to know what the market was going to do next. It's been a gradual process of tinkering with my portfolio as I learned new concepts to find an AA that feels right to me.

I never considered inflation protection until the variable rate on I-Bonds became 3.54% in May. Around the same time I read The Bogleheads Guide to Investing and learned of the idea of having half my bonds in inflation protected securities. Suddenly inflation was on my radar and I moved a good fraction of my bond portion of my portfolio from a total bond fund to a TIPS bond fund. I plan to keep this AA even if inflation is indeed transitory.

If the recent surge in inflation never happened, it wouldn't have occurred to me that inflation protection was important since it hadn't been significant during my adult life. So it isn't that I didn't think inflation was possible, it's that I never even knew inflation protection was a thing to consider.
Just another lazy index investor who loves I-Bonds for my emergency fund (https://www.treasurydirect.gov/indiv/research/indepth/ibonds/res_ibonds.htm).
LeftCoastIV
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Re: Hi! I'm high inflation. Nice to meet you.

Post by LeftCoastIV »

<see below post>
Last edited by LeftCoastIV on Thu Nov 18, 2021 6:12 am, edited 1 time in total.
LeftCoastIV
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Re: Hi! I'm high inflation. Nice to meet you.

Post by LeftCoastIV »

rockstar wrote: Wed Nov 17, 2021 7:03 pm When the economic environment changes, you need to change with it.

Bonds are not keeping up with inflation. The question you have to asks yourself is: do you want to take on interest rate risk by holding longer term bonds that don't keep up today with the Fed tapering?

I don't want to get 50-100bps more of yield with a whole lot more interest rate risk. If I was holding bonds, I'd stay on the short end of the curve.
This is the conclusion I've come to, although HYS to me makes more sense right now than short-term treasuries, so in effect I am treating fixed income as entirely ballast/bear market protection, and not making any real attempt to beat inflation.

Of course I would love more attractive fixed income options, but Mr. Market is not offering that right now.
Blue456
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Re: Hi! I'm high inflation. Nice to meet you.

Post by Blue456 »

burritoLover wrote: Wed Nov 17, 2021 10:28 am Hi! I'm high inflation. Nice to meet you.
Oh inflation my old friend,
I've come to talk with you again,
Because of vision softly creeping
Left its seeds while I was sleeping.

Honestly I am looking forward to my raise in January 2022. Based on that raise I will know how much inflation has cut down on my student loan debt and mortgage.
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nedsaid
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Re: Hi! I'm high inflation. Nice to meet you.

Post by nedsaid »

JupiterJones wrote: Wed Nov 17, 2021 11:35 am
sailaway wrote: Wed Nov 17, 2021 10:33 am I lived through the 70s and 80s and have travelled extensively. My view of the current inflation rates is "You ain't seen nuthin' yet."
Seriously. Inflation has been--up until now--so low over the past several decades, that there are probably many here who have never even seen sizable inflation occur during their investing years.
I am old enough to remember the 1960's and 1970's. Lots of folks born after me would not have experienced higher inflation during their lifetime. Even though inflation has been fairly well behaved during my working career, it takes $3 to $4 to buy what $1 bought in 1983, depending upon what you buy. My mom and dad experienced it during the years immediately after WWII and then again during the 1970's. They thought in terms of purchasing power and not dollars and for good reason.
A fool and his money are good for business.
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