7 ms·

OK I give in. The talk of inflation being sustained is everywhere. I didn’t feel the burn of the “transitory” inflation that we are going through as much but ob

OK I give in. The talk of inflation being sustained is everywhere. I didn’t feel the burn of the “transitory” inflation that we are going through as much but obviously this is happening. Numbers say so, even Ray Dalio and Michael Burry have warned this may end up being sustained inflation and only the start. So assuming this is the start of a sustained inflation, how do I protect my portfolio? Most of my money is in index funds and FAANG companies.

kkwteh 5y ago
One direct way to hedge against inflation is to buy a house with a fixed rate mortgage. Any inflation will directly decrease the real amount of your mortgage debt.
- belval 5y ago
  That sword could have two edges though, if the fed increases the interest rates to curb the inflation, you will end up with an asset that depreciate regardless of your fixed mortgage because a significant number of people will default on their mortgage payment driving down the cost of housing as the banks do repossessions. Also banks are already increasing their fixed rate significantly to make sure that they don't end up holding the bag.
  - dragonwriter 5y ago
    > the fed increases the interest rates to curb the inflation, you will end up with an asset that depreciate regardless of your fixed mortgage Only if it is stagflation (inflation without underlying strong economic activity), which is rather exceptional in the US. If it is (more normal for the US) activity-driven inflation, Fed tight money policy to constrain it isn't going to do more to reduce real home prices than the underlying activity is to drive them.
    - belval 5y ago
      That's fair, but it assumes that a lot of people who took mortgages that only "worked" because of the low rates won't go bankrupt once the rates increase. Strong economic activity and inflation simply does not translate to higher wages for a significant proportion of the population. In other words, if you want to shelter your money from inflation the best approach might not be to tangle your money with assets that are currently overpriced because of the low interest rates.
      - hellojesus 5y ago
        Most people have fixed rate mortgages these days. Ninja loans were mostly regulated out of existence. Most institutions are expecting home prices to revert to the mean inflation of about 2% per year. So we won't likely experience mass defaults due to arms this time around. I personally think it's more likely that rising rates (if it ever happens (hate you, fed!)), will more significantly impact businesses with heavy, non fixed debts. They would need to refinance at increased rates which is more expensive, likely dampening their economic activity and potentially forcing layoffs. That may lead to consumers cutting back and push us into a recession/deflationary cycle, and that would perhaps put downward pressure on the housing market. But I don't trust the fed. They refuse to do their job. If the above happens they'll probably instantly cut rates again just like in 2018 (I think?) when they raised them by about 25bps and then immediately caved to the market decline. It's sickening. They're not doing their job. We've needed to raise rates for a long time (and cut gov spending). But we're a sick beast that is slowing dying of infection.
xboxnolifes 5y ago
> So assuming this is the start of a sustained inflation, how do I protect my portfolio? Most of my money is in index funds and FAANG companies. Potentially nothing? Inflation is like 6-7% over last year. The S&P 500 is 24% over last year.
- sb057 5y ago
  At the start of the stagflation of the 70's, the S&P 500 rallied nearly 36% from June 1970 to June 1971. In proceeding decade, the nominal value of the S&P 500 went from $73 to $114, a respectable 56%. However, cumulative inflation during this same period was approximately 100%. That healthy 56% nominal gain became a real 39% loss. https://www.macrotrends.net/2324/sp-500-historical-chart-data https://www.macrotrends.net/2324/sp-500-historical-chart-dat...
  - tnel77 5y ago
    Sounds like it’s better to be invested compared to sitting on cash. Which is the norm, correct?
    - sb057 5y ago
      I don't know of anyone who advocates holding cash beyond an emergency reserve in any virtually any circumstance.
DavidAdams 5y ago
One way to protect against inflation is to take out a huge mortgage on a house. Interest rates are low right now, and if inflation is high, the mortgage balance will be eroded away by inflation.
- redisman 5y ago
  Aren’t you just buying a very inflated asset with that mortgage? The median house price in the US is +200% since the previous peak in 2008 https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MSPUS
  - Specie33 5y ago
    Yes, the way to combat this is to buy a house that needs work on great property.
    - dagw 5y ago
      Except everybody thinks this way. When I was house hunting a few years ago houses that needed work on great property sold at basically 0% discount compared to houses that didn't need work. I saw bidding wars resulting in fixer-uppers going for literally more than houses that didn't need work. The only exception where houses that needed serious structural work, and even then the discount was nowhere near enough to make it really worth it.
      - Specie33 5y ago
        You are right. I had to buy an absolute basket case of a house all the easy fix and flips are gone. You have to be able to take the pain/work of the deals that people without vison pass on.
  - jjav 5y ago
    > Aren’t you just buying a very inflated asset with that mortgage? If there is no significant inflation in the future, that's probably right. But if there is significant inflation, that value will go way up in absolute dollars simply due to the dollar devaluing. And the mortgage balance will effectively be minimzed by the same reason.
__alexs 5y ago
Invest in companies that will benefit from inflation. Ones with low capital and debt requirements. This happens to be most of the S&P500 these days already.
- dnadler 5y ago
  Companies that have a large amount of fixed rate debt on their books may benefit as well.
  - __alexs 5y ago
    Probably depends on the duration of the bonds? I'd have thought anyone holding long term bonds when interest rates rise is going to be hurting.
    - auntienomen 5y ago
      You're right that holding debt through an interest rate rise will hurt, but I think the parent poster meant companies that issue debt, not ones that hold it.
Aulig 5y ago
Well diversified (international) index funds seem like the best option to me. Companies can increase prices with inflation.
- iAm25626 5y ago
  Is this assuming Inflation is isolated in US only? What happen if there is a global inflation? If cost of living is high in the US; one can just pick up and leave (for the FIRE/Single digital Nomad).
  - Aulig 5y ago
    No, I'm not assuming that - Europe is experiencing a higher inflation too. Diversification is generally a good idea in investments, many say it's the only free lunch you can get :)
JohnJamesRambo 5y ago
I’ve had the same questions. I found a surprisingly balanced and reasonable discussion here- https://www.reddit.com/r/fatFIRE/comments/qrjh02/how_are_fatfire_folks_hedging_against_inflation/ https://www.reddit.com/r/fatFIRE/comments/qrjh02/how_are_fat... Another great resource I use is https://inflationchart.com https://inflationchart.com You can change parameters and get actual data to look at what did well and how cyclical the nature of everything is and how much of a needle point the sp500 is currently at. https://inflationchart.com/spx-in-gold/?show_adjuster=1 https://inflationchart.com/spx-in-gold/?show_adjuster=1
- danuker 5y ago
  > Another great resource I use is https://inflationchart.com https://inflationchart.com Thank you for the great resource! However I have a small comment. What the site is using is actually M2 - https://fred.stlouisfed.org/series/MABMM301USM189S https://fred.stlouisfed.org/series/MABMM301USM189S The real M3 money supply report was discontinued - https://fred.stlouisfed.org/series/M3 https://fred.stlouisfed.org/series/M3 See here for the ShadowStats estimation of M3: http://www.shadowstats.com/alternate_data/money-supply-charts http://www.shadowstats.com/alternate_data/money-supply-chart...
  - pieterhg 5y ago
    I'm the maker of https://inflationchart.com https://inflationchart.com and I use the M3 for the U.S. from the Fed which is active: https://fred.stlouisfed.org/series/MABMM301USM189S https://fred.stlouisfed.org/series/MABMM301USM189S Please correct me if I'm wrong!
    - danuker 5y ago
      That chart shows what the Fed wants you to use in place of the M3. Note that the values are the same as M2: https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/MABMM301USM189S https://fred.stlouisfed.org/series/MABMM301USM189S https://www.federalreserve.gov/releases/h6/discm3.htm https://www.federalreserve.gov/releases/h6/discm3.htm Your site should say M2 instead of M3.
hourislate 5y ago
Buy hard assets, land, houses, condo, PM's, etc. You can try finding investment vehicles that will do that for you but at the end of the day you're better off physically owning them. Disclaimer: I am not qualified to give Investment advice.
- redisman 5y ago
  Are any of those undervalued right now? The problem is that I can buy a condo and then have the bubble pop and still lose 50% in its value
  - hourislate 5y ago
    With the FED/Gov actively destroying the value of the USD, there is nothing undervalued now. With RE you can at least put it to work (long term lease or AirBnB) and cover costs/small return/preserve the value of capital.
- nicbou 5y ago
  Prime ministers?
eof 5y ago
You probably need to do nothing, except maybe diversify. Inflation will happen to also the goods and services offered by the companies in your portfolio. It is not inflation itself that scares the market; it is the feds reaction to it, which will raise interest rates. If interest rates rise, the yield you can receive from buying “risk-free” assets (ie treasury bonds) also rises. When your risk free rate rises; the risk-on returns (especially of a high CAPE environment!) of being in the market are a lot less enticing. So money flows from the market into bonds, and then the market drops. If your portfolio drops along with the market at large, you’ve not really lost anything, it’s just the numbers changing (assuming you’re not retired or soon to be!). Beyond waiting-and-seeing, taking out fixed interest loans to buy assets is probably a good move; unless the performance of those assets is tied to the interest rates (ie probably a wash to buy a home now if you expect interest rates to rise)
grey-area 5y ago
Avoid cash savings, own shares in companies and debt. Debt is a promissory note to the future, at which point the debt will be worth far less than it is now. The unfortunate consequence of being heavy assets though is that you are then exposed if the current overconfidence recedes and markets crash, so perhaps consider whether the companies you invest in rely on this free money environment (growth companies don't tend to do well with high interest rates, which tend to follow high inflation). Personally I'd avoid US assets at this moment because of this - indexes are very heavily skewed to tech right now, even VWRL is 3% Apple alone at this point and > 50% US.
- Workaccount2 5y ago
  This is what really bothers me. Everyone is being forced to put their money into an extremely overvalued market. What is a crash going to look like when main street is sitting on assets just like wall street is? Is my stock portfolio FDIC insured against a run on the market? I hate that my new savings account is shares in multibillion dollar corporations that have never made a penny of profit. And when they crash they'll tear down all the solid companies too. It's a damned if you do, damned if you don't situation.
  - kgin 5y ago
    You can invest in companies that make money though. There are lots of them chugging along just fine and providing returns, dividends even. The high flying meme stocks get majority of the attention, but they’re not the majority of the market. It’s true they’ll get pulled down in a bear markets, but not nearly as much as meme stocks.
toto444 5y ago
I am surprised no one has replied something like : "Buy bitcoins. Contrary to fiat money Bitcoin can't be printed by governments and as a result there is no inflation with Bitcoin" yet.
- camjohnson26 5y ago
  Bitcoin is extremely volatile and isn’t directly correlated with inflation, it has the same problem with inflated asset values that everything does right now.
- camgunz 5y ago
  Bitcoin also tends to lose value as inflation rises, so it's just a more convoluted way of advocating for BTC over traditional stocks.
- redisman 5y ago
  Or ETH2 as you can stake it for 4-5% ARP of ETH which is also deflationary these days and has basically no power consumption
- mattnewton 5y ago
  I think it would suffer from the gold problem though, where what you are buying is _interest_ in the underlying asset. So it peaks before the anticipated inflation, and then during the inflation it actually doesn't keep up as people offload it but don't buy more. Ex- https://www.cnbc.com/2021/06/08/gold-as-an-inflation-hedge-history-suggests-otherwise.html https://www.cnbc.com/2021/06/08/gold-as-an-inflation-hedge-h...
ixacto 5y ago
Think about what your actual cash outflow categories really are. 5-10% increase in the price of food or household items is nothing when so much of our income is already going to housing costs (like 30-50% housing), which have in large costal cities been YOLOing to the moon for the last couple years. This actually brings up a really inconvenient point for the FIRE/All in VTSAX crowd IMO--when real estate is drastically beating the market how exactly does your FIRE plan work if you don't own a home and want to live in the same place? Having 1.5MM in VTSAX is nothing when you want to buy a house but that is 50% of your total assets. The workaround is to just work longer and fatFIRE, so 1.5MM is no longer ok, it needs to be more like 3-4 to be able to put down a 250k downpayment if one is trying to retire in a desirable area. But then you have 250k downpayment in a 6x leveraged asset with no diversification. if you tried to trade stocks with 6x leverage and no diversification, this would be nuts but apparently it's ok to do for housing. TL;DR I don't care if the price of cfood goes up a bit. Housing is going up 12%YOY and that is the main expense...
- evanmoran 5y ago
  Great point that food/goods costs are completely overshadowed by housing in most cities. I’m not a FIRE person, but I’ve always believed the trick to early retirement is to live very very cheaply (it makes all the charts look pretty). I believe this implies you can’t live where you want as soon as your living expense requirements are exceeded by the housing costs. This could be a year or twenty years out, but the risk is there. Curious if anyone has a different take!
sb057 5y ago
One very straightforward investment are Treasury Inflation-Protected Securities, or TIPS. They're adjusted to meet CPI, so that does mean trusting the BLS will be honest with their assessment. Very poor investment most of the time (their real return is typically lower than the already low return of standard Treasurys), but in an inflationary environment can prove wise to have. Additionally, commodities will almost by definition track inflation.
- lyrrad 5y ago
  I've been buying Series I Treasury Bonds (I Bonds) for the past few years. They're currently yielding a fixed rate of 0% for up to 30 years from purchase, which above the market rate for TIPS for periods from 5 to 30 years. Both TIPS and Series I bonds track CPI-U. They never lose nominal value, but can't be sold on the open market. The main downsides of these Bonds are that they are limited to purchases of $10,000 per calendar year, they can typically only be purchased electronically from Treasury Direct, they can't be redeemed for the first year, and have a three month interest penalty if redeemed in the first five years. I'm mainly purchasing them for a portion of my emergency fund, but they're an interesting long term investment, since they currently offer a guaranteed return significantly more than TIPS held to maturity.
- dgm885 5y ago
  The CPI understates inflation. Do you eat out? Go to grocery stores. Calculate you personal inflation rate. For me it seems to be 10% to 15%.
  - sb057 5y ago
    Hence my caveat about the BLS having to be honest. That said, while they do massage the CPI numbers (hedonic adjustments making cars cost the same over a 20 year period being the worst example), it has been historically vaguely accurate.
newaccount2021 5y ago
Some will say cash is trash, but all inflationary bubbles end with a deflationary crash and cash becomes highly coveted by those looking to deleverage How can cash be "coveted"? People will give you more shares, house etc per dollar
not_fin_advice 5y ago
> how do I protect my portfolio? Most of my money is in index funds and FAANG I am not a financial advisor by any stretch of the imagination, but, assuming you work in tech it might be a good idea to diversify a bit. I find it surprising how many people I know in tech keep their RSUs when they vest. Sure it has worked great for a few years but now you're tying your savings/investment and income to exactly the same organization. If there were ever to be a tech crash not only would your income be at risk but all of your savings and investments as well. Even in the best of times diversification has been the common advice, and now more then ever it seems like a good idea to spread out your extra income to as many different places as you can.
Spooky23 5y ago
As an individual investor? Chill out. People like Ray Dalio make money on chaos and the doomsaying bullshit. We’ve been at war for 20 years and just did a massive stimulus to avoid economic collapse, inflation is a normal and healthy thing to happen. It’s bad for billionaires with most of their money in cash. If inflation is a thing, fine, it’s not the end of the world. Don’t accelerate the pay down of debt with fixed interest rates and don’t invest in most bonds. As an individual, you should lock in longer term interest rates on debt and move your low risk portion of your portfolio away from bonds to cash. If you have variable interest rate debt (credit cards, line of credit, etc) pay it off. If interest rates go up, start dollar cost averaging fixed rate, non-marketable government debt like savings bonds as those rates rise.
- splitstud 5y ago
  How many companies have you run or helped run through inflationary peaks? How many households?
- RickJWagner 5y ago
  Billionaires with most of their money in cash? I don't know of any. I do know of a lot of retired people, or people with low-wage jobs. That's who gets hurt by inflation. edit: Warren Buffet's wealth is in stock. Berkshire Hathaway holds the cash, for opportunity investing. (Just in case that's the billionaire you're thinking of.)
taneq 5y ago
> So assuming this is the start of a sustained inflation, how do I protect my portfolio? Most of my money is in index funds and FAANG companies. The performance of the stock market in the last year or so shows that most investors see it as the safest haven for their liquid capital. Combine that with the fact that most of the dollars printed in the past 18 months have gone straight into large investors' pockets and you have a perfect storm for the usual safe-bet stocks skyrocketing. ...at least until the wheels fall off, but then we'll have bigger problems than the valuation of our nest eggs.
ianai 5y ago
I listen to the alpha trader podcast. Their latest interviewee suggested equities that made it through the last two big busts would probably be safe havens now. I think he said cyclicals-stuff out of the limelight. It’s a good listen.
o_bscure 5y ago
Not financial advice, but in times of high inflation companies need to find ways to pass on costs to consumers in order to protect their margins. Companies that have strong pricing power like chemicals, materials, etc. will undoubtedly be able to pass costs onto other consumer facing companies. I dont know if Hershey's will sell more candy, but I know they have to buy sweetener.
csomar 5y ago
Short answer: You can't. Inflation (by gov. money printing) is a form of taxation for everyone who has money, deals with money or deals with businesses that deal with money. That means everyone. You are going to be affected, period. Certainly, you can reduce your exposure to USD; but it is already a dumb idea to hold USD for too long. However, don't panic reduce your USD exposure and instead expose yourself to risks that you cannot assess. There is yet an asset that holds against inflation. (ie: goes up when the $ goes down but never goes down by itself) Such asset will be highly complex and highly in demand that it might even incur a small inflation (discount) itself. We are, after all, in a world where all currencies are inflating at best and hyper-inflating at worst.
odonnellryan 5y ago
If you expect interest rates to increase, you should hedge your tech stocks and look at sectors that do well in high rate environments.

kkwteh 5y ago

One direct way to hedge against inflation is to buy a house with a fixed rate mortgage. Any inflation will directly decrease the real amount of your mortgage debt.

belval 5y ago
That sword could have two edges though, if the fed increases the interest rates to curb the inflation, you will end up with an asset that depreciate regardless of your fixed mortgage because a significant number of people will default on their mortgage payment driving down the cost of housing as the banks do repossessions. Also banks are already increasing their fixed rate significantly to make sure that they don't end up holding the bag.
- dragonwriter 5y ago
  > the fed increases the interest rates to curb the inflation, you will end up with an asset that depreciate regardless of your fixed mortgage Only if it is stagflation (inflation without underlying strong economic activity), which is rather exceptional in the US. If it is (more normal for the US) activity-driven inflation, Fed tight money policy to constrain it isn't going to do more to reduce real home prices than the underlying activity is to drive them.
  - belval 5y ago
    That's fair, but it assumes that a lot of people who took mortgages that only "worked" because of the low rates won't go bankrupt once the rates increase. Strong economic activity and inflation simply does not translate to higher wages for a significant proportion of the population. In other words, if you want to shelter your money from inflation the best approach might not be to tangle your money with assets that are currently overpriced because of the low interest rates.
    - hellojesus 5y ago
      Most people have fixed rate mortgages these days. Ninja loans were mostly regulated out of existence. Most institutions are expecting home prices to revert to the mean inflation of about 2% per year. So we won't likely experience mass defaults due to arms this time around. I personally think it's more likely that rising rates (if it ever happens (hate you, fed!)), will more significantly impact businesses with heavy, non fixed debts. They would need to refinance at increased rates which is more expensive, likely dampening their economic activity and potentially forcing layoffs. That may lead to consumers cutting back and push us into a recession/deflationary cycle, and that would perhaps put downward pressure on the housing market. But I don't trust the fed. They refuse to do their job. If the above happens they'll probably instantly cut rates again just like in 2018 (I think?) when they raised them by about 25bps and then immediately caved to the market decline. It's sickening. They're not doing their job. We've needed to raise rates for a long time (and cut gov spending). But we're a sick beast that is slowing dying of infection.

xboxnolifes 5y ago

> So assuming this is the start of a sustained inflation, how do I protect my portfolio? Most of my money is in index funds and FAANG companies. Potentially nothing? Inflation is like 6-7% over last year. The S&P 500 is 24% over last year.

sb057 5y ago
At the start of the stagflation of the 70's, the S&P 500 rallied nearly 36% from June 1970 to June 1971. In proceeding decade, the nominal value of the S&P 500 went from $73 to $114, a respectable 56%. However, cumulative inflation during this same period was approximately 100%. That healthy 56% nominal gain became a real 39% loss. https://www.macrotrends.net/2324/sp-500-historical-chart-data https://www.macrotrends.net/2324/sp-500-historical-chart-dat...
- tnel77 5y ago
  Sounds like it’s better to be invested compared to sitting on cash. Which is the norm, correct?
  - sb057 5y ago
    I don't know of anyone who advocates holding cash beyond an emergency reserve in any virtually any circumstance.

DavidAdams 5y ago

One way to protect against inflation is to take out a huge mortgage on a house. Interest rates are low right now, and if inflation is high, the mortgage balance will be eroded away by inflation.

redisman 5y ago
Aren’t you just buying a very inflated asset with that mortgage? The median house price in the US is +200% since the previous peak in 2008 https://fred.stlouisfed.org/series/MSPUS https://fred.stlouisfed.org/series/MSPUS
- Specie33 5y ago
  Yes, the way to combat this is to buy a house that needs work on great property.
  - dagw 5y ago
    Except everybody thinks this way. When I was house hunting a few years ago houses that needed work on great property sold at basically 0% discount compared to houses that didn't need work. I saw bidding wars resulting in fixer-uppers going for literally more than houses that didn't need work. The only exception where houses that needed serious structural work, and even then the discount was nowhere near enough to make it really worth it.
    - Specie33 5y ago
      You are right. I had to buy an absolute basket case of a house all the easy fix and flips are gone. You have to be able to take the pain/work of the deals that people without vison pass on.
- jjav 5y ago
  > Aren’t you just buying a very inflated asset with that mortgage? If there is no significant inflation in the future, that's probably right. But if there is significant inflation, that value will go way up in absolute dollars simply due to the dollar devaluing. And the mortgage balance will effectively be minimzed by the same reason.

__alexs 5y ago

Invest in companies that will benefit from inflation. Ones with low capital and debt requirements. This happens to be most of the S&P500 these days already.

dnadler 5y ago
Companies that have a large amount of fixed rate debt on their books may benefit as well.
- __alexs 5y ago
  Probably depends on the duration of the bonds? I'd have thought anyone holding long term bonds when interest rates rise is going to be hurting.
  - auntienomen 5y ago
    You're right that holding debt through an interest rate rise will hurt, but I think the parent poster meant companies that issue debt, not ones that hold it.

Aulig 5y ago

Well diversified (international) index funds seem like the best option to me. Companies can increase prices with inflation.

iAm25626 5y ago
Is this assuming Inflation is isolated in US only? What happen if there is a global inflation? If cost of living is high in the US; one can just pick up and leave (for the FIRE/Single digital Nomad).
- Aulig 5y ago
  No, I'm not assuming that - Europe is experiencing a higher inflation too. Diversification is generally a good idea in investments, many say it's the only free lunch you can get :)

JohnJamesRambo 5y ago

I’ve had the same questions. I found a surprisingly balanced and reasonable discussion here- https://www.reddit.com/r/fatFIRE/comments/qrjh02/how_are_fatfire_folks_hedging_against_inflation/ https://www.reddit.com/r/fatFIRE/comments/qrjh02/how_are_fat... Another great resource I use is https://inflationchart.com https://inflationchart.com You can change parameters and get actual data to look at what did well and how cyclical the nature of everything is and how much of a needle point the sp500 is currently at. https://inflationchart.com/spx-in-gold/?show_adjuster=1 https://inflationchart.com/spx-in-gold/?show_adjuster=1

danuker 5y ago
> Another great resource I use is https://inflationchart.com https://inflationchart.com Thank you for the great resource! However I have a small comment. What the site is using is actually M2 - https://fred.stlouisfed.org/series/MABMM301USM189S https://fred.stlouisfed.org/series/MABMM301USM189S The real M3 money supply report was discontinued - https://fred.stlouisfed.org/series/M3 https://fred.stlouisfed.org/series/M3 See here for the ShadowStats estimation of M3: http://www.shadowstats.com/alternate_data/money-supply-charts http://www.shadowstats.com/alternate_data/money-supply-chart...
- pieterhg 5y ago
  I'm the maker of https://inflationchart.com https://inflationchart.com and I use the M3 for the U.S. from the Fed which is active: https://fred.stlouisfed.org/series/MABMM301USM189S https://fred.stlouisfed.org/series/MABMM301USM189S Please correct me if I'm wrong!
  - danuker 5y ago
    That chart shows what the Fed wants you to use in place of the M3. Note that the values are the same as M2: https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/M2SL https://fred.stlouisfed.org/series/MABMM301USM189S https://fred.stlouisfed.org/series/MABMM301USM189S https://www.federalreserve.gov/releases/h6/discm3.htm https://www.federalreserve.gov/releases/h6/discm3.htm Your site should say M2 instead of M3.

hourislate 5y ago

Buy hard assets, land, houses, condo, PM's, etc. You can try finding investment vehicles that will do that for you but at the end of the day you're better off physically owning them. Disclaimer: I am not qualified to give Investment advice.

redisman 5y ago
Are any of those undervalued right now? The problem is that I can buy a condo and then have the bubble pop and still lose 50% in its value
- hourislate 5y ago
  With the FED/Gov actively destroying the value of the USD, there is nothing undervalued now. With RE you can at least put it to work (long term lease or AirBnB) and cover costs/small return/preserve the value of capital.
nicbou 5y ago
Prime ministers?

eof 5y ago

You probably need to do nothing, except maybe diversify. Inflation will happen to also the goods and services offered by the companies in your portfolio. It is not inflation itself that scares the market; it is the feds reaction to it, which will raise interest rates. If interest rates rise, the yield you can receive from buying “risk-free” assets (ie treasury bonds) also rises. When your risk free rate rises; the risk-on returns (especially of a high CAPE environment!) of being in the market are a lot less enticing. So money flows from the market into bonds, and then the market drops. If your portfolio drops along with the market at large, you’ve not really lost anything, it’s just the numbers changing (assuming you’re not retired or soon to be!). Beyond waiting-and-seeing, taking out fixed interest loans to buy assets is probably a good move; unless the performance of those assets is tied to the interest rates (ie probably a wash to buy a home now if you expect interest rates to rise)

grey-area 5y ago

Avoid cash savings, own shares in companies and debt. Debt is a promissory note to the future, at which point the debt will be worth far less than it is now. The unfortunate consequence of being heavy assets though is that you are then exposed if the current overconfidence recedes and markets crash, so perhaps consider whether the companies you invest in rely on this free money environment (growth companies don't tend to do well with high interest rates, which tend to follow high inflation). Personally I'd avoid US assets at this moment because of this - indexes are very heavily skewed to tech right now, even VWRL is 3% Apple alone at this point and > 50% US.

Workaccount2 5y ago
This is what really bothers me. Everyone is being forced to put their money into an extremely overvalued market. What is a crash going to look like when main street is sitting on assets just like wall street is? Is my stock portfolio FDIC insured against a run on the market? I hate that my new savings account is shares in multibillion dollar corporations that have never made a penny of profit. And when they crash they'll tear down all the solid companies too. It's a damned if you do, damned if you don't situation.
- kgin 5y ago
  You can invest in companies that make money though. There are lots of them chugging along just fine and providing returns, dividends even. The high flying meme stocks get majority of the attention, but they’re not the majority of the market. It’s true they’ll get pulled down in a bear markets, but not nearly as much as meme stocks.

toto444 5y ago

I am surprised no one has replied something like : "Buy bitcoins. Contrary to fiat money Bitcoin can't be printed by governments and as a result there is no inflation with Bitcoin" yet.

camjohnson26 5y ago
Bitcoin is extremely volatile and isn’t directly correlated with inflation, it has the same problem with inflated asset values that everything does right now.
camgunz 5y ago
Bitcoin also tends to lose value as inflation rises, so it's just a more convoluted way of advocating for BTC over traditional stocks.
redisman 5y ago
Or ETH2 as you can stake it for 4-5% ARP of ETH which is also deflationary these days and has basically no power consumption
mattnewton 5y ago
I think it would suffer from the gold problem though, where what you are buying is _interest_ in the underlying asset. So it peaks before the anticipated inflation, and then during the inflation it actually doesn't keep up as people offload it but don't buy more. Ex- https://www.cnbc.com/2021/06/08/gold-as-an-inflation-hedge-history-suggests-otherwise.html https://www.cnbc.com/2021/06/08/gold-as-an-inflation-hedge-h...

ixacto 5y ago

Think about what your actual cash outflow categories really are. 5-10% increase in the price of food or household items is nothing when so much of our income is already going to housing costs (like 30-50% housing), which have in large costal cities been YOLOing to the moon for the last couple years. This actually brings up a really inconvenient point for the FIRE/All in VTSAX crowd IMO--when real estate is drastically beating the market how exactly does your FIRE plan work if you don't own a home and want to live in the same place? Having 1.5MM in VTSAX is nothing when you want to buy a house but that is 50% of your total assets. The workaround is to just work longer and fatFIRE, so 1.5MM is no longer ok, it needs to be more like 3-4 to be able to put down a 250k downpayment if one is trying to retire in a desirable area. But then you have 250k downpayment in a 6x leveraged asset with no diversification. if you tried to trade stocks with 6x leverage and no diversification, this would be nuts but apparently it's ok to do for housing. TL;DR I don't care if the price of cfood goes up a bit. Housing is going up 12%YOY and that is the main expense...

evanmoran 5y ago
Great point that food/goods costs are completely overshadowed by housing in most cities. I’m not a FIRE person, but I’ve always believed the trick to early retirement is to live very very cheaply (it makes all the charts look pretty). I believe this implies you can’t live where you want as soon as your living expense requirements are exceeded by the housing costs. This could be a year or twenty years out, but the risk is there. Curious if anyone has a different take!

sb057 5y ago

One very straightforward investment are Treasury Inflation-Protected Securities, or TIPS. They're adjusted to meet CPI, so that does mean trusting the BLS will be honest with their assessment. Very poor investment most of the time (their real return is typically lower than the already low return of standard Treasurys), but in an inflationary environment can prove wise to have. Additionally, commodities will almost by definition track inflation.

lyrrad 5y ago
I've been buying Series I Treasury Bonds (I Bonds) for the past few years. They're currently yielding a fixed rate of 0% for up to 30 years from purchase, which above the market rate for TIPS for periods from 5 to 30 years. Both TIPS and Series I bonds track CPI-U. They never lose nominal value, but can't be sold on the open market. The main downsides of these Bonds are that they are limited to purchases of $10,000 per calendar year, they can typically only be purchased electronically from Treasury Direct, they can't be redeemed for the first year, and have a three month interest penalty if redeemed in the first five years. I'm mainly purchasing them for a portion of my emergency fund, but they're an interesting long term investment, since they currently offer a guaranteed return significantly more than TIPS held to maturity.
dgm885 5y ago
The CPI understates inflation. Do you eat out? Go to grocery stores. Calculate you personal inflation rate. For me it seems to be 10% to 15%.
- sb057 5y ago
  Hence my caveat about the BLS having to be honest. That said, while they do massage the CPI numbers (hedonic adjustments making cars cost the same over a 20 year period being the worst example), it has been historically vaguely accurate.

newaccount2021 5y ago

Some will say cash is trash, but all inflationary bubbles end with a deflationary crash and cash becomes highly coveted by those looking to deleverage How can cash be "coveted"? People will give you more shares, house etc per dollar

not_fin_advice 5y ago

> how do I protect my portfolio? Most of my money is in index funds and FAANG I am not a financial advisor by any stretch of the imagination, but, assuming you work in tech it might be a good idea to diversify a bit. I find it surprising how many people I know in tech keep their RSUs when they vest. Sure it has worked great for a few years but now you're tying your savings/investment and income to exactly the same organization. If there were ever to be a tech crash not only would your income be at risk but all of your savings and investments as well. Even in the best of times diversification has been the common advice, and now more then ever it seems like a good idea to spread out your extra income to as many different places as you can.

Spooky23 5y ago

As an individual investor? Chill out. People like Ray Dalio make money on chaos and the doomsaying bullshit. We’ve been at war for 20 years and just did a massive stimulus to avoid economic collapse, inflation is a normal and healthy thing to happen. It’s bad for billionaires with most of their money in cash. If inflation is a thing, fine, it’s not the end of the world. Don’t accelerate the pay down of debt with fixed interest rates and don’t invest in most bonds. As an individual, you should lock in longer term interest rates on debt and move your low risk portion of your portfolio away from bonds to cash. If you have variable interest rate debt (credit cards, line of credit, etc) pay it off. If interest rates go up, start dollar cost averaging fixed rate, non-marketable government debt like savings bonds as those rates rise.

splitstud 5y ago
How many companies have you run or helped run through inflationary peaks? How many households?
RickJWagner 5y ago
Billionaires with most of their money in cash? I don't know of any. I do know of a lot of retired people, or people with low-wage jobs. That's who gets hurt by inflation. edit: Warren Buffet's wealth is in stock. Berkshire Hathaway holds the cash, for opportunity investing. (Just in case that's the billionaire you're thinking of.)

taneq 5y ago

> So assuming this is the start of a sustained inflation, how do I protect my portfolio? Most of my money is in index funds and FAANG companies. The performance of the stock market in the last year or so shows that most investors see it as the safest haven for their liquid capital. Combine that with the fact that most of the dollars printed in the past 18 months have gone straight into large investors' pockets and you have a perfect storm for the usual safe-bet stocks skyrocketing. ...at least until the wheels fall off, but then we'll have bigger problems than the valuation of our nest eggs.

ianai 5y ago

I listen to the alpha trader podcast. Their latest interviewee suggested equities that made it through the last two big busts would probably be safe havens now. I think he said cyclicals-stuff out of the limelight. It’s a good listen.

o_bscure 5y ago

Not financial advice, but in times of high inflation companies need to find ways to pass on costs to consumers in order to protect their margins. Companies that have strong pricing power like chemicals, materials, etc. will undoubtedly be able to pass costs onto other consumer facing companies. I dont know if Hershey's will sell more candy, but I know they have to buy sweetener.

csomar 5y ago

Short answer: You can't. Inflation (by gov. money printing) is a form of taxation for everyone who has money, deals with money or deals with businesses that deal with money. That means everyone. You are going to be affected, period. Certainly, you can reduce your exposure to USD; but it is already a dumb idea to hold USD for too long. However, don't panic reduce your USD exposure and instead expose yourself to risks that you cannot assess. There is yet an asset that holds against inflation. (ie: goes up when the $ goes down but never goes down by itself) Such asset will be highly complex and highly in demand that it might even incur a small inflation (discount) itself. We are, after all, in a world where all currencies are inflating at best and hyper-inflating at worst.

odonnellryan 5y ago

If you expect interest rates to increase, you should hedge your tech stocks and look at sectors that do well in high rate environments.