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HOW TO: Hedge Against Inflation
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ALWAYS stay invested in stocks, like 80% in ETF's at Total USA Level. The other 20% can be in bonds, also in ETF form at Total USA level. No need for gold, crypto, reits, options, shorts, hedges, memes, etc. As 'protection of down stock markets', which is over hyped, is actually very simple. CHANGE your mindset, and when stocks drop 10, 20, 30%, then SELL bonds and BUY stocks…simple, logical, and profitable. When stocks recover (they will), restore the money to the bond fund…kind of like borrowing from yourself. Get rid of fear!
do you think owning precious metals ( gold/silver ) is good idea. if so how many ounces do your think it should be ( silver to gold )
The bonds stay flat, I still prefer cash over bonds
If you look at just using Vanguard Wellesley Income (VWINX) or Vanguard Wellington (VWELX) they do have down side protection built in and if you only used one of these funds it would mean you don't need to rebalance at all. This could make it real easy use ether of these funds as a source of income with out much work on the investors part.
The fees a little higher than these other funds but it could save you money if you don't keep up with rebalancing your account.
The 50/50 Stock/Bond portfolio is under appreciated in my opinion. Once deeper into retirement, 33/33/33 Stock/Bond/Cash is nice also. Purpose of my comment, how does a floating rate (like FFHCX) compare to TIPS in such a portfolio? Maybe longer duration floating rate with shorter duration TIPS?
Depending on your time line and tolerance for risk it may or may not pay to diversify. Not all markets react the same all the time, years ago bonds and stocks would rise and fall opposite of each other but they don't seem to be doing that these days. I'm no market guru, I was 100% stock and stock funds in 2007-2008 and actually added more money into them because in my thinking "the market will eventually go up" and it did. People asked me for advice and I said buy more and people said they can't stomach the loses.
Times change, I'm closer to retirement and I am diversifying my portfolio and am keeping cash available.
For investment safety, diversification is key. My knowledge of bonds is very weak, I have looked at inflation protected TIPS but don't really see a reason for them as they have a negative yield; haven't paid a regular dividend and up until now with no inflation I questioned why own them. Stocks, bonds, reits, maybe utilities and energy and possibly foreign stocks. As far as crypto or other assets the best advice I've heard from great investors is – if you don't understand it don't invest in it. This could be the best advice for most people.
I never thought TIPS would have so much volatility due to capital gain/loss potential. I will have to consider them for my portfolio.
You've got tons of videos laughing at inflation talk….now you're all in on the inflation train??
I know I will be criticized for this, but it is my opinion to do 100% VT/VTWAX from Day 1, and add 2-3 cash flowing small multi-family rental properties by age 40. that is all one will need during wealth building phase. once you reach retirement you can evaluate where bonds are, where real estate is, and where things are in the markets.
We use the fifty-fifty strategy, and sleep well at night.
Josh, your getting closer to my earlier comment regarding Vanguard's Retirement Income Fund, VTINX, as an intermediate, 'all-weather bucket' between Wellington and cash for retirees. Compare VTINX to Wellington and the S&P 500 from the fall of '07 to the spring of '13 and you will see what I mean. The reason that I keep bringing this up is that a lot of 401k plans (mine!!!) offer VTINX under the Target Retirement Series ( and very little other appropriate choices).
Thanks,
Fred
On the right hand side of the screen using that tool- Sortino Ratio. It's like Sharpe Ratio but it only penalizes on downside volatility. You mentioned that "nobody cares about upside volatility", which is true, and is what Sortino Ratio measures. Just thought I'd mention it.
The bonds had a tail wind in the form of falling interest rates 2000 to 2021. Not likely that will repeat in next two decades as rates are near zero with nowhere to go but up. Do Tips behave differently than most bonds in a rising rate environment?
Downside protection = capital preservation or risk reassessment. In the way up, a person has an allocation of 70/30. Once market turns down, we want to be 50/50.
It does not work that way. Captial preservation equals at an allocation of 50/50 or 40/60 or 30/70.
What happened to 0 bond allocation? I am somewhat confused. If you are truly so concerned about a downturn, sell stocks buy bonds to an allocation you feel protected.
We are 70/30 and will remain 8n that allocation because we feel that is the proper allocation for our level of risk and cash. Do you have 3 years of cash? If so, why at 50 are you so afraid of market downturn? What is missing here?
Sell stocks now at a high and buy bonds so you will be protected.
Very interesting comparison.
I wouldn't be worried today. With D.C. pumping out a fresh slab of Wall Street Welfare they'll be riding high on that for a couple months at least. Build them charging stations, rich folks need more pork on the backs of the little people.