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What is the best financial strategy in the case of inflation? Invest money so you don't have it sitting in a bank account? Spend it on big ticket items as they

What is the best financial strategy in the case of inflation? Invest money so you don't have it sitting in a bank account? Spend it on big ticket items as they may hold their value better than the cash? Simply try to reduce costs?

moondistance 5y ago
There are many views on this and it is important to form your own opinion. From personal study and conversations with other investors: (1) stocks that correlate with inflation (e.g. some banks and utilities, inflation-adjusted REITs), (2) companies with high-growth prospects (e.g. late-stage yet still privately-held companies) - these are much higher risk, but worth putting a small percentage here over a long time horizon.
whimsicalism 5y ago
I don't think there is a best strategy. Equities do well in mildly inflationary environments, but when everyone is talking about inflation is when the Fed is most likely to make contractionary signaling, causing equities to drop. I would focus on just investing in ETFs and not trying to time the market.
koonsolo 5y ago
Bitcoin ;)
airstrike 5y ago
The simplest answer is buying TIPS https://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm https://www.treasurydirect.gov/indiv/products/prod_tips_glan...
- SilasX 5y ago
  At this point, wouldn't they have already priced in the inflation? that is, you have to pay more for the right to those inflation-adjusted interest rates.
  - airstrike 5y ago
    Well, the idea is that you would have bought those some time ago when everyone was discussing whether or not inflation was a real risk, a transitory one or just a rumor. TIPS are better as a long-term inflation hedge, not a short-term one. I suppose investment managers can employ a variety of other tactics to protect against US inflation, including FX, commodities, picking stocks with low exposure to inflation / proven ability to pass-through rising input costs to customers, alternative currencies like gold or BTC (though in that case you're really just trading inflation risk for other arguably less well understood risks) and more.
- panax 5y ago
  I-bonds are better, currently yielding 3.54% (limit $10k/person/year) This blog post is projecting that the rate might increase to above 7% for I-bonds next month, if that is the case then wait until November to buy them: https://tipswatch.com/2021/10/13/inflation-report-sets-i-bonds-inflation-adjusted-rate-at-7-12-and-social-security-cola-at-5-9/ https://tipswatch.com/2021/10/13/inflation-report-sets-i-bon...
asmos7 5y ago
so the absolute worst is cash in something like a savings/checking account. You're interest rate will be less than 1/2% so in this case you're losing ~5% per year. You're best bet is low fee index funds that mirror the entire US market. VTSAX through Vanguard is a great choice. Your money now keeps it's purchasing power b/c you no longer own money, you own stocks and when prices go up stocks are just another good that also goes up in price so your dollars now track inflation.
phreeza 5y ago
If you have relatively secure employment and think your employer will raise wages in line with inflation, now is an incredibly good time to get a mortgage.
- kingkonz1 5y ago
  lol
  - greenpizza13 5y ago
    Mind explaining the lol here? I would love to know the counterargument to the mortgage comment.
    - EVa5I7bHFq9mnYK 5y ago
      Here it is: If inflation continues to rise, interest rates will rise too. If interest rate increases x2, house prices will fall proportionally. So you might end up owning more to the bank than you house is worth in the market.
      - phreeza 5y ago
        If your income rises significantly in dollar terms, you can easily pay off your mortgage, and stay living in your house? If you are forced to sell in the dip you are in trouble, but most people I know buy houses with the expectation of living there for decades.
        jbay808 5y ago
        That's true if you have a full-term fixed rate mortgage. In some countries, like Canada, those are not available.
        EVa5I7bHFq9mnYK 5y ago
        Only 37% of homeowners stay for more than 10 years in the same house.
vmception 5y ago
Buying OTM Call LEAPS! Who cares if inflation is 5.4% or the money supply increases 40% when your ROI is 10,000% Everyone worries about hyperinflation bread lines from 100 years ago when they need to look at what the capital class of the time was able to do: help wealth inequality by making it wider! Stocks went to the moon long before the Apollo! Personal risk tolerance.
- phreeza 5y ago
  Hyperinflation and general subsequent economic destruction was actually a great equalizer, in Europe at least. Many big fortunes were obliterated, but the average worker living paycheck to paycheck was not really much worse off. Trying to find the source for this, i think it was Piketty in Capital in the 21st century.
  - vmception 5y ago
    The differences between then and now are very important too: Now we have continental monetary unions, with transcontinental coordinated monetary policy, spearheaded by diplomatic relations as well as alumni from the same institutions implementing the monetary policy in every union. Every major currency is increasing in supply similar proportions, masking imbalances and largely preventing the possibility of capital flight as there is no alternative for the size of capital that would need to find a new home. So all thats left are just assets, at any price.
nonameiguess 5y ago
Don't go buying big ticket items. Whatever is causing them to cost more is usually specific to the item. For all electronics and vehicles, it's chip shortages, which won't last forever, so all you're doing is buying something you don't need now when the price will go back down to normal in two years. You're buying high, selling low, which is the exact opposite of what you want to do. Strategies relying on predicting prices relies on you actual predicting them. This is a historical inflation rate. To take advantage of it, you'd have had to make big ticket purchases before it happened. The best thing you can do right now is refinance any long-term debt you have to a lower fixed rate, and possibly try to find whatever appreciating assets are still cheaply priced, i.e. low cap value stocks or something. But good luck there. Blue chips have been destroying everything for years and there way to know when the insanity will stop or if it will ever stop. The only sure thing is locking in low interest on things you have to borrow for anyway, or for anything you just want to maintain constant value on rather than looking for gains, buy TIPS. The only way those ever lose value is if the entire government collapses, at which point anything else you own other than seeds and bullets and land becomes just as worthless.
missedthecue 5y ago
Borrow at a fixed interest rate.
postingawayonhn 5y ago
Buy lots of real estate with high leverage and fixed interest rates.
notyourday 5y ago
Inflation currently is only relevant for those that cannot borrow cheaply. If you can borrow cheaply ( i.e. below inflation rate ), borrow and buy assets.
AnimalMuppet 5y ago
As I said elsewhere, I think this is transitory. (Caused by printing money + Covid-related drop in output, both of which should stop.) So I wouldn't set up a long-term investment strategy based on this. I might think about tweaking my investment strategy for the next year based on this, but not longer term. Note well: I am not an investment advisor, and this is not investment advice. This is some guy on the internet who thinks he knows what he's talking about, but may well not.

moondistance 5y ago

There are many views on this and it is important to form your own opinion. From personal study and conversations with other investors: (1) stocks that correlate with inflation (e.g. some banks and utilities, inflation-adjusted REITs), (2) companies with high-growth prospects (e.g. late-stage yet still privately-held companies) - these are much higher risk, but worth putting a small percentage here over a long time horizon.

whimsicalism 5y ago

I don't think there is a best strategy. Equities do well in mildly inflationary environments, but when everyone is talking about inflation is when the Fed is most likely to make contractionary signaling, causing equities to drop. I would focus on just investing in ETFs and not trying to time the market.

koonsolo 5y ago

Bitcoin ;)

airstrike 5y ago

The simplest answer is buying TIPS https://www.treasurydirect.gov/indiv/products/prod_tips_glance.htm https://www.treasurydirect.gov/indiv/products/prod_tips_glan...

SilasX 5y ago
At this point, wouldn't they have already priced in the inflation? that is, you have to pay more for the right to those inflation-adjusted interest rates.
- airstrike 5y ago
  Well, the idea is that you would have bought those some time ago when everyone was discussing whether or not inflation was a real risk, a transitory one or just a rumor. TIPS are better as a long-term inflation hedge, not a short-term one. I suppose investment managers can employ a variety of other tactics to protect against US inflation, including FX, commodities, picking stocks with low exposure to inflation / proven ability to pass-through rising input costs to customers, alternative currencies like gold or BTC (though in that case you're really just trading inflation risk for other arguably less well understood risks) and more.
panax 5y ago
I-bonds are better, currently yielding 3.54% (limit $10k/person/year) This blog post is projecting that the rate might increase to above 7% for I-bonds next month, if that is the case then wait until November to buy them: https://tipswatch.com/2021/10/13/inflation-report-sets-i-bonds-inflation-adjusted-rate-at-7-12-and-social-security-cola-at-5-9/ https://tipswatch.com/2021/10/13/inflation-report-sets-i-bon...

asmos7 5y ago

so the absolute worst is cash in something like a savings/checking account. You're interest rate will be less than 1/2% so in this case you're losing ~5% per year. You're best bet is low fee index funds that mirror the entire US market. VTSAX through Vanguard is a great choice. Your money now keeps it's purchasing power b/c you no longer own money, you own stocks and when prices go up stocks are just another good that also goes up in price so your dollars now track inflation.

phreeza 5y ago

If you have relatively secure employment and think your employer will raise wages in line with inflation, now is an incredibly good time to get a mortgage.

kingkonz1 5y ago
lol
- greenpizza13 5y ago
  Mind explaining the lol here? I would love to know the counterargument to the mortgage comment.
  - EVa5I7bHFq9mnYK 5y ago
    Here it is: If inflation continues to rise, interest rates will rise too. If interest rate increases x2, house prices will fall proportionally. So you might end up owning more to the bank than you house is worth in the market.
    - phreeza 5y ago
      If your income rises significantly in dollar terms, you can easily pay off your mortgage, and stay living in your house? If you are forced to sell in the dip you are in trouble, but most people I know buy houses with the expectation of living there for decades.
      - jbay808 5y ago
        That's true if you have a full-term fixed rate mortgage. In some countries, like Canada, those are not available.
      - EVa5I7bHFq9mnYK 5y ago
        Only 37% of homeowners stay for more than 10 years in the same house.

vmception 5y ago

Buying OTM Call LEAPS! Who cares if inflation is 5.4% or the money supply increases 40% when your ROI is 10,000% Everyone worries about hyperinflation bread lines from 100 years ago when they need to look at what the capital class of the time was able to do: help wealth inequality by making it wider! Stocks went to the moon long before the Apollo! Personal risk tolerance.

phreeza 5y ago
Hyperinflation and general subsequent economic destruction was actually a great equalizer, in Europe at least. Many big fortunes were obliterated, but the average worker living paycheck to paycheck was not really much worse off. Trying to find the source for this, i think it was Piketty in Capital in the 21st century.
- vmception 5y ago
  The differences between then and now are very important too: Now we have continental monetary unions, with transcontinental coordinated monetary policy, spearheaded by diplomatic relations as well as alumni from the same institutions implementing the monetary policy in every union. Every major currency is increasing in supply similar proportions, masking imbalances and largely preventing the possibility of capital flight as there is no alternative for the size of capital that would need to find a new home. So all thats left are just assets, at any price.

nonameiguess 5y ago

Don't go buying big ticket items. Whatever is causing them to cost more is usually specific to the item. For all electronics and vehicles, it's chip shortages, which won't last forever, so all you're doing is buying something you don't need now when the price will go back down to normal in two years. You're buying high, selling low, which is the exact opposite of what you want to do. Strategies relying on predicting prices relies on you actual predicting them. This is a historical inflation rate. To take advantage of it, you'd have had to make big ticket purchases before it happened. The best thing you can do right now is refinance any long-term debt you have to a lower fixed rate, and possibly try to find whatever appreciating assets are still cheaply priced, i.e. low cap value stocks or something. But good luck there. Blue chips have been destroying everything for years and there way to know when the insanity will stop or if it will ever stop. The only sure thing is locking in low interest on things you have to borrow for anyway, or for anything you just want to maintain constant value on rather than looking for gains, buy TIPS. The only way those ever lose value is if the entire government collapses, at which point anything else you own other than seeds and bullets and land becomes just as worthless.

missedthecue 5y ago

Borrow at a fixed interest rate.

postingawayonhn 5y ago

Buy lots of real estate with high leverage and fixed interest rates.

notyourday 5y ago

Inflation currently is only relevant for those that cannot borrow cheaply. If you can borrow cheaply ( i.e. below inflation rate ), borrow and buy assets.

AnimalMuppet 5y ago

As I said elsewhere, I think this is transitory. (Caused by printing money + Covid-related drop in output, both of which should stop.) So I wouldn't set up a long-term investment strategy based on this. I might think about tweaking my investment strategy for the next year based on this, but not longer term. Note well: I am not an investment advisor, and this is not investment advice. This is some guy on the internet who thinks he knows what he's talking about, but may well not.