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Fighting Inflation Without Getting Carried Away

Another worthwhile "The Intelligent Investor" column from Jason Zweig. Enjoy.



  • I tend to agree with Jason's view. These days I hold high stock allocations since bond yield pays too little these days.
  • edited December 2021
    Sven said:

    I tend to agree with Jason's view. These days I hold high stock allocations since bond yield pays too little these days.

    LOL - I maintain a stable of bond funds for a variety of reasons (including age). But total return is not one of them. For kicks I checked the returns on some I own and some I don’t today. Both DODIX and DODLX (owned) are negative YTD. I also checked Price’s GNMA and it’s off 2% YTD. Fido’s GNMA held up better, but is negative. Even Price’s short term PRWBX is negative and the “positive” return on their ultrashort TRBUX probably wouldn’t buy you a cup of coffee at Starbucks.

    My personal preference is generally stay away from TIPS funds, but don’t care to argue with those that like them. I think a lot of their valuation is a result of people not understanding them very well. Notwithstanding, I did post a link about the high returns on Treasury TIPS (purchased directly). I have dipped my fingers in a floating rate fund. These are better for rising interest rates - but don’t yield a lot now.
  • It is pretty sad when your bonds and bond funds loose money all year but the alternative for bear market protection- cash- is worse.
    Core funds are all underwater. Only things even a little bit positive are Floating rate, short term Munis. When rates rise it may get worse!

    I have never been much a fan of TIPS, as they seem to loose money most of the time.

    I have some allocations to IVOL, INFL ( will crash with market decline) and PFIX which hedges interest rates, and may protect bonds
  • If I set aside comparative performance of my bonds--- all in funds--- and look at raw dollar figures, the monthlies will be a big help in the new year. We incurred a big (for us) one-time expense, buying furniture. Zero interest for 12 months. I've resisted taking the divs. in order to keep them growing. But it's time. Basically, if we control our spending, we are at least mitigating the inflation "out there" in the stores. And it's nice to have connections, too: for $25, we can get an entire, HUGE, Ahi for cooking, for poke ("po-kay") and sashimi. My wife knows how to make the best of a fish with a knife!
  • I can't read Mark's article, need a subscription.

    @sma3, what do you mean by this comment:
    It is pretty sad when your bonds and bond funds loose money all year but the alternative for bear market protection- cash- is worse.
    Why is cash, that may have little to no appreciation, worst than bond funds that, well, many think will lose money going forward? One, cash, has loss of value per inflation and the other (bond funds) has loss of capital value + loss of value per inflation. Or am I missing something?

    Also I would say, yes, TIPS have lost money most of the time over past years, but inflation during those years has been nil. Of course they would not perform as well as a core bond or most any bond fund in that environment. But the inflation rate is changing, quickly. The time may be coming where they will out-perform core bond funds for years to come - ok, maybe.

  • edited December 2021
    It’s a close call between bonds and cash at this time. Who can predict the next 6 months or year in the interest rate sensitive bond markets? One’s decision relates to his overall portfolio make-up, investment style, etc. While most bonds technically are earring a higher rate than cash, that premium is easily cancelled out by the negative effect of rising rates plus the higher expenses of bond funds. In addition, with a bond fund you’re more at the mercy of the stampeding public who can cause fund losss if they decide to bail out at the same time.
  • Mark’s article (WSJ) is in Apple News subscription, $10/month that includes “selected” articles from WSJ, Barron’s, and Washington Post.

    Jason Zweig’s article discussed that many investment vehicles failed to fight inflation consistently over the last several decades. What worked in the past do not work as well today since other new vehicles are available today, including Bitcoin.
  • @MikeM

    The easy metric I have seen used on cash returns is to subtract the current "Rate" of inflation ( 4 to 6% ??) from the 0.001% most money markets pay and say you loose that every year in cash.

    This is really only true if your spending and expenses are identical to the method used to calculate that inflation metric. For example your rent probably wont increase monthly, nor will your taxes and mortgage rate. Food and gas are different story, but who calculates their monthly or weekly costs?

    I think the big problem is the low rates of almost all bonds, as while their prices may go up in a market crash ( TLT up 3% last week), if that crash is precipitated by inflation, and rates rise, you will still loose!
  • Stocks as inflation hedge - Prudent Speculator, Market Watch in Barron's

    ".....nine-plus decades of market history suggest that equities have gained ground, on average, whether inflation is rising or falling.....Yes, stocks have performed better when inflation is moving lower, but they have performed admirably on average, both concurrent with and subsequent to increases (as well as decreases) in the inflation rate over 12-month time spans, with value stocks and dividend payers leading the charge. The effect was not limited to 12-month periods. When we analyzed the numbers for shorter and longer periods, the take-home message that stocks seem to care little about inflation (in the aggregate) was similar.....we have crunched the numbers to see how stocks have performed when the rate is above 6%. Many may be surprised to learn that equities have performed better when inflation has been higher than when it has been lower, with value stocks enjoying sensational returns, on average, over those ensuing 176 periods. To be sure, while supposed market experts might argue otherwise, equities have long been a terrific hedge against inflation. -- John Buckingham and team"
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