[HN Gopher] Ask HN: What do we do with cash now that inflation i...
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Ask HN: What do we do with cash now that inflation is a risk?
What does History tell us is the empirically correct investment
strategy in a period of forthcoming inflation? For max return? For
safety?
Author : soferio
Score : 26 points
Date : 2022-03-10 19:56 UTC (3 hours ago)
| andrewmcwatters wrote:
| I never see anyone mention this, but I don't buy the idea--
| perhaps based on a gut feeling versus reading any particular
| studies--that it's wise to just stick your cash into any asset
| vehicle because inflation is ever persistent.
|
| Well it's ever persistent for everyone, and if everyone is
| buying, it's not _impossible_ to purchase something beyond its
| fair value.
|
| For instance, if you bought into US equities on Feb 10th, you
| would have lost over 24% by March 23rd. If you held it until now,
| you would have made back your losses... but if you bought broad
| equities on EOY 2021, you would have lost _more_ than inflation
| up to this point in 2022.
|
| Ray Dalio mentioned his confusion about markets not crashing when
| he was young because the dollar became untethered from gold a
| second time in U.S. history, and he later realized buying assets
| when central banks print was a "rhyme" in economics history--
| these events don't repeat perfectly, but similar situations occur
| over time. In his case, it was a repeat event.
|
| But I hate with a passion when people talk about generally what
| you should do without ever talking about mechanical limits to
| that type of decision making.
|
| It's so pervasive that you get studies put out by financial
| institutions saying you're better to always be fully invested,
| and to never set aside cash. Could you elaborate on that? Or is
| it because you're an institution getting paid on expense ratios
| based on AUM.
|
| The whole attitude industry-wide is gross and conflicting to me.
|
| If you refused to buy when general equities were historically
| high at any point in time and held on to cash while eating
| inflation, when market prices came down and you bought when
| valuations were fair value you would have _made_ money, you didn
| 't lose it simply because inflation was present. It always is.
| But you have a choice of whether you want to buy a dollar of
| assets for two, or if you want to buy a dollar of assets for 80
| cents. That's NOT MARKET TIMING. That's refusing to buy something
| when it's overvalued, but people so grossly conflate the two that
| you can't have any reasonable discussion with a layperson about
| this concept because catch-all sayings predominantly reside in
| average investors' minds over studies and historic figures about
| asset management.
|
| Buy low, sell high! Buy and hold forever! Yeah, but what is "
| _high_ "? And why would you hold something that is dying?
|
| I feel like the pop literature available to the public that is
| digestible covers some reasonable concepts but I think there are
| studies that either haven't been independently recreated to back
| simple common questions for the above average person, or they
| haven't been performed at all.
| andrewmcwatters wrote:
| For example, Bogle's "buy everything and hold it forever" only
| works when you're not really doing that, and you're buying an
| index. But any market cap weighted index is doing EXACTLY not
| that. It by definition has to reduce and increase weighting of
| constituents over time because their valuations change over
| time... including going to ZERO.
| rdtwo wrote:
| I'm buying more house.
| fatnoah wrote:
| I don't know if you're joking or not, but for me, that was one
| consideration in figuring out what to do with stocks I sold
| when things started going downhill. I'm leaning heavily towards
| making some home improvements vs. investing in something else.
| lmedinas wrote:
| Cryptocurrency and Gold ?
| exolymph wrote:
| I invest in crypto, but it's worth noting that prices follow
| the stock market / larger economy. Correlated asset.
| aynyc wrote:
| As far as I know, the only accessible hedge strategy is to take
| on debt, which usually means mortgage loans. But mortgage usually
| comes with different risk and more work.
| Mezzie wrote:
| I can't speak to history, but I'm converting my cash into social
| capital. It won't directly get me more money, but I have a
| disability (MS) and therefore a variable-length career. (i.e. I
| can't plan on working until 60/65/etc. - I could have 3 years
| left, I could have 33.)
|
| The more of a safety net I enable to exist here, the more likely
| it will be here when I need it, and the more connections I make
| here now, the more likely it is someone will catch me when I
| fall.
|
| If you're JUST talking financial return (versus safety, hence my
| decision), it's entirely dependent on your timeline. Do you need
| to pull out in 1 year? 5? 20? 50? They all require different
| strategies.
| anonymousWithMS wrote:
| What do you mean by "converting cash into social capital"? I
| can understand that you'd be prioritizing relationships, but
| how is cash entering this picture?
|
| Interested to hear more about this as I also have MS and share
| your concerns of having a time-limited career.
| muzani wrote:
| I live in a developing country where inflation is moderate. Just
| do anything other than holding on to the money.
|
| Starting a business becomes substantially less risk than taking a
| job.
|
| Some people would say buy property etc and you can just raise
| rent along with inflation. But it doesn't necessarily work that
| way; the prices may actually go up _slower_ than inflation.
| awb wrote:
| Assets are a hedge against inflation. Stocks, real estate, art,
| etc.
|
| The more utility and stability, the safer the investment. The
| more speculative or novel, the riskier the investment.
|
| Real estate and property are typically pretty safe and have some
| utility.
|
| As are bonds (but most might not keep up with high inflation,
| just dampen the effects).
|
| Novel assets like crypto, NFTs, etc. will likely produce higher
| variability in returns (either positive or negative).
| PopAlongKid wrote:
| >As are bonds (but most might not keep up with high inflation,
| just dampen the effects)
|
| U.S. government TIPS or I-bonds
|
| https://www.thebalance.com/comparing-tips-to-i-bonds-2388668
| toomuchtodo wrote:
| Ibonds have a $10k per person per year limit ($5k extra if
| you buy paper bonds with a tax refund), and if you use your
| kid's SSN, it's considered a gift to them. Things to keep in
| mind.
|
| Not investing advice.
| exolymph wrote:
| Invest in stuff -- TINA, "there is no alternative." Stocks and
| crypto if you highly prize liquidity and are investing for the
| long haul (e.g. you won't take the money out again until decades
| from now). Real estate, not because it's crash-resistant but
| because it has tangible utility.
|
| Most of all invest in your community and relationships. Those are
| always the best prep, whether we're talking financial or disaster
| preparedness.
| anm89 wrote:
| Commodities, real estate and debt.
|
| I would argue real estate isn't as much of a sure things as some
| people suggest as it could be rate sensitive and it could
| correlate with equity markets over the long term.
| yulaow wrote:
| Honestly I keep the same investment strategy I had before and
| stay diversified (80% etf stock, 10% etf bond, 10% "maybe I'll
| never see the money back, whatever" crypto) and keep investing
| the same percentage of my salary (20% monthly)
|
| I am looking at least to 20years from now before withdrawing
| something.
|
| I don't know how much will last this inflation period, how big it
| will go, how it will affect the stock/crypto/bond market,
| whatever other "it will happen only every 50 years" absurd event
| will happen in the next years after a pandemic and a (let's hope
| almost) world war 3, etc... So it makes no sense to change my
| investment strat now if I can't even predict the situation in 3
| months.
| m1117 wrote:
| Stocks!
| lazerpants wrote:
| After considering the risks I put some of my money into Gemini as
| GUSD yielding around 8%. After paying the taxes on that you're at
| least close to inflation.
|
| I chose Gemini because of their NY state compliance and their
| attempts to be compliant ahead of government regulation. I still
| wouldn't put all of my money in Gemini but it is a highly liquid,
| high-yielding, way to diversify and get some yield.
|
| Full disclosure: I do stand to benefit from Gemini's success due
| to associates having equity, but I used GUSD and Gemini Earn
| prior to having that connection.
| Bostonian wrote:
| Lots of people have recommended stocks, but if market are
| efficient, it should not be possible to predict the excess
| returns of stocks or bonds over cash using public information
| such as the current level of inflation.
| radford-neal wrote:
| It's true that the price of stocks should already reflect that
| there may, or may not, be high inflation in the future. But if
| you're worried about the risk of high inflation, switching to
| stocks from cash could make sense, even it does not increase
| your expected return. On the other hand, though stocks
| represent real assets that should be a protection against
| inflation, their value is also highly related to general
| economic conditions, which typically are rather poor when high
| inflation is causing general chaos. So it's unclear...
| dilippkumar wrote:
| Not an expert by any means - but if you can buy a loan with pre-
| inflation interest rates, then you'll benefit from the inflation
| eating up some of the debt. This makes it a good time to borrow
| iff
|
| 1. There is something meaningful/profitable that you can do with
| the borrowed money
|
| 2. Your credibility allows you to buy a loan at cheap prices
|
| 3. Your inflation predictions are accurate
|
| 4. Your loan's terms keep the interest rate fixed at a rate less
| than the inflation you expect
|
| As for myself, I don't think I can put extra capital to
| profitable use right now, so I'm not going to be borrowing any
| money.
| thebean11 wrote:
| Yeah I'm considering buying a home (with mortgage of course)
| for this reason
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(page generated 2022-03-10 23:02 UTC)