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Preparing Your Portfolio for Inflation



  • beebee
    edited March 2021
    Do Stock hold up during periods of rising rates? I appears more often than not.

    Inflation is far more important to stocks than interest rate levels.
  • Does "printing money" affect inflation? Why, it simply must!

    Still amazed at how many correspondents remain sure that printing money always causes inflation. It's like the gov debt is the same as household debt thing; too plausible to check against the facts
  • Some recent thoughts fromTRP on the subject ...

    T. Rowe Price

    As mentioned earlier, a better buying opportunity existed 6-12 months back. I’m not certain this is the best time to dive into these funds after a big run-up.
  • beebee
    edited March 2021
    From @hanks, TRP link:
    Given this expected shift, we believe investments that could potentially benefit from higher inflation may add value to an investor’s portfolio. These assets typically include value, small-cap, and emerging markets equities; while within fixed income, TIPS and floating rate loans may be attractive options. “Real assets”—which include natural resources and real estate equities—also appear to be good alternatives as these assets have the potential to maintain or gain value during periods of high inflation.
    Then there's this:

  • edited March 2021
    I have read so many inflation/rate scary stories in the last several weeks. Let me know when inflation is high (over 3%) for several months.
    Inflation will be higher in the next 2-4 months on annual basis because they compare it to the same month of 2020 when we had a black swan. Let's see if inflation will be over 3% after August and stay high for months.
    Inflation is a rate of change. It may be up 2% in one month and if in the second month there is no inflation than it equals zero.
    Remember, the Fed wants inflation at 2-2.5%.

    And then rates will go to sky, let me know when the 10 year treasury is going to be over 2.5% in the next 6 months, after all so many scream it's coming any minute.

    The usual, scary stories sell better.

    What funds I would own? The ones that are going up. SP500 was up very nicely in 2020 and it's up 6.2% in 2021. Bonds: plenty of Munis + Multi/Non Trad funds are up YTD.
  • edited March 2021
    At a tad more than FD1000’s hypothetical 3% inflation rate, inflation at 3.25% yearly would result in a 10% increase in the cost of living in 3 years (Inflation compounds in a manner similar to compound interest.) Not to say that would be good or bad - just to demonstrate the cumulative effect a seemingly small level of inflation can have over time.

    While I’m disappointed at the shallow depth of the T. Rowe Price article I linked, the real news here is that this conservative outfit chose to mention the possibility of significant inflation at all. For a number of years their take was that price inflation would remain subdued (largely correct). So for them to acknowledge the possibility at all is worthy of note.

    Always best to think about an issue before it arises - “To the early bird goes the worm ...”
  • >> Always best to think about an issue before it arises

    what does that mean?
  • Sorry I was unclear. I meant that if an investor is knowledgeable about the types of investments that would prosper during an inflationary environment before inflation becomes a paramount consideration he stands a better chance of making good decisions earlier on (ie: the early bird)) should rising and persistent inflation come to fruition.

    Many other scenarios as well could arise to alter the economic landscape going forward including, but not limited to, higher taxation, stronger regulation, materials shortages, war, civil unrest, plague. So - best to think about about as many eventualities / outcomes in your educational experiences as time, resources and intellect allow.

    I didn’t see @bee’s OP so much a cry that inflation is coming as an intellectual challenge for folks to think about the possibility of higher inflation in the near future and how it might impact investment decisions. In the same vein, T. Rowe Price’s piece was cautious and circumspect on the issue, sharing some investment classes that might benefit from higher inflation without making any bold predictions. Thanks for asking. Aim to please.

  • @BenWP congrats. The 300z is underrated and cabriolet to boot.. but you showed your true colors with the Panoz... what an amazing vehicle. I recently spoke with a well known Ferrari enthusiast /personality and his biggest regret? ... not purchasing an Audi TT... I was surprised until I researched further. Love cars a lot more than debt. Cheers.
  • edited March 2021
    I follow this rule over 20 years and I have done great. I never invest based on prediction or pat attention to them, I invest based on what happened lately, and it never disappointed me. The market tells me what works and what doesn't and why I mentioned the funds/index above. When most stocks+bonds don't work+VIX is very high I start selling.
    In the last 12 years I was out 12 weeks which is about 2% and avoided the largest meltdowns.

    Stocks: SPY =6.35% and very close to all-time high
    Bonds: Munis + Multi/Non Trad funds are doing great
    The above is already working for a year and many still looking, why?
    KISS. As long as it works there in nothing to do or prepare.
  • The Changing Characteristics of Labor: all accounts robots and other forms of automation are set to explode in usage. What this means is that trillions more “hands” will enter the labor force. Better yet, these “hands” will work 24-hours a day, 365 days a year. They’ll never call in sick, or quit either. Their immense productivity will enable human specialization that will render the present rather primitive by comparison. We’re amazed in modern times that there are professional video game players, and video game coaches, but in future decades the previously-mentioned professions will be ho hum compared to what people will eventually be paid to do.
    Forbe's Article:
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