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      09-24-2021, 02:45 PM   #1
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Inflation Strategies

Been thinking about inflation for several reasons, and then wondering what strategies you all have in mind as investors or as consumers.

Why am I thinking inflation? Because weíre well past the end of the usual 20ish year cycle of interest rates falling and have been at bottom about 10 years. The cycle should, absent Fed intervention, be on the rise now. And with rising interest rates we usually see rising inflation. There are other reasons to expect rising inflation from a macro perspective. And of course this year we have had a pretty big jump in wholesale and retail prices. The Fed originally called these temporary but more recently suggests the temporary period may be extended.

So for the purpose of this thread, letís assume inflation is back and will run for at least a decade. Say averaging 5-6% but could be higher. What would you do as a consumer, what would you invest in, and what would you divest?
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      09-24-2021, 08:34 PM   #2
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Originally Posted by 2000cs View Post
Been thinking about inflation for several reasons, and then wondering what strategies you all have in mind as investors or as consumers.

Why am I thinking inflation? Because we’re well past the end of the usual 20ish year cycle of interest rates falling and have been at bottom about 10 years. The cycle should, absent Fed intervention, be on the rise now. And with rising interest rates we usually see rising inflation. There are other reasons to expect rising inflation from a macro perspective. And of course this year we have had a pretty big jump in wholesale and retail prices. The Fed originally called these temporary but more recently suggests the temporary period may be extended.

So for the purpose of this thread, let’s assume inflation is back and will run for at least a decade. Say averaging 5-6% but could be higher. What would you do as a consumer, what would you invest in, and what would you divest?
I'm stoned from gummies,

So let's talk inflation.

Some got damn microchips got us all in a bind here..

Long lead on HVAC and controls electronics.
Prices still going up.
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      09-24-2021, 08:46 PM   #3
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Originally Posted by MsGoGoMoto View Post
I'm stoned from gummies,

So let's talk inflation.

Some got damn microchips got us all in a bind here..

Long lead on HVAC and controls electronics.
Prices still going up.
Didn't even know you could buy gummies in GA other than

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      09-24-2021, 09:05 PM   #4
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Quote:
Originally Posted by MsGoGoMoto View Post
I'm stoned from gummies,

So let's talk inflation.

Some got damn microchips got us all in a bind here..

Long lead on HVAC and controls electronics.
Prices still going up.
Didn't even know you could buy gummies in GA other than

Delta 8

Is so buzzed
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      09-24-2021, 10:23 PM   #5
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No reason to change anything. You can't move money into bonds or anything else as there's still no interest there. The best thing you can do is to continue contributing to your retirement fund/IRA/stock portfolio as much as you can. Then, let it ride until you get close enough to retirement to move everything to less risky investments. If what you've been doing has been working, keep it up.
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      09-24-2021, 10:34 PM   #6
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whats everyones thoughts on salaries and inflation ?

should salary increase in accordance every year ? i'm thinking of asking for a raise
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      09-24-2021, 11:05 PM   #7
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Inflation is moderating. Spend time on the FRED data warehouse. 5%-6% for a decade is overly pessimistic. The US is headed for a Japan-like future with interest rates and inflation.

The antidote for inflation is to invest heavily in equities. 100% equities, excluding cash. Bonds are dead for the foreseeable future.

Live below your means, as usual. Increase your comfort with volatility, it will help you live with your 100% equity allocation.
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      09-25-2021, 08:57 AM   #8
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whats everyones thoughts on salaries and inflation ?

should salary increase in accordance every year ? i'm thinking of asking for a raise
Remembering the 1970s and early 80s, salaries did rise but they lagged inflation. For example, if there was 6% inflation in a year, your salary might rise by that amount next year. Some companies eventually did two or four raises per year, most didnít if I recall correctly.

Same for social security these days. It is indexed to inflation but the SS increase comes in the next calendar year.
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      09-25-2021, 09:00 AM   #9
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Originally Posted by chassis View Post
Inflation is moderating. Spend time on the FRED data warehouse. 5%-6% for a decade is overly pessimistic. The US is headed for a Japan-like future with interest rates and inflation.

The antidote for inflation is to invest heavily in equities. 100% equities, excluding cash. Bonds are dead for the foreseeable future.

Live below your means, as usual. Increase your comfort with volatility, it will help you live with your 100% equity allocation.
Assume the inflation scenario is correct (humor me).

Which equities/sectors are better positioned to do well in an inflationary environment (fixed costs, pricing ability for example)? What about real estate, like apartments or rental properties? Gold?

Iím not looking for financial planner advice on this forum, just spitballing a bit.
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      09-25-2021, 09:04 AM   #10
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Any and all equities.

Please answer a question: what is your risk tolerance? Please tell me your portfolio's standard deviation (volatility) today. This is easily calculated by using portfoliovisulizer's Efficient Frontier tool: https://www.portfoliovisualizer.com/...nalysisResults

I'm not a financial advisor. More information is needed from you to answer your most recent question.
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      09-25-2021, 09:06 AM   #11
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Originally Posted by chassis View Post
Inflation is moderating. Spend time on the FRED data warehouse. 5%-6% for a decade is overly pessimistic. The US is headed for a Japan-like future with interest rates and inflation.

The antidote for inflation is to invest heavily in equities. 100% equities, excluding cash. Bonds are dead for the foreseeable future.

Live below your means, as usual. Increase your comfort with volatility, it will help you live with your 100% equity allocation.
I've done this very thing. Some have called me crazy with my aggressive stance with my investment strategy. Well, it's paid off handsomely over the years. The viewpoint I have is it's only paper losses and only become real when you sell.
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      09-25-2021, 09:20 AM   #12
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Originally Posted by chassis View Post
Any and all equities.

Please answer a question: what is your risk tolerance? Please tell me your portfolio's standard deviation (volatility) today. This is easily calculated by using portfoliovisulizer's Efficient Frontier tool: https://www.portfoliovisualizer.com/...nalysisResults

I'm not a financial advisor. More information is needed from you to answer your most recent question.
My portfolio is fine and I also hate bonds (they historically underperform in real terms). But thatís not what Iím asking.

Would you shift from autos (limited pricing power) to REITs (fixed asset cost and ability to raise rents) for example?

On the consumption side (business consumer or personal), would you build inventories, buy ahead or try to contract for long-term fixed prices?

How about hedging (financial instead of physical protection)?

Not asking for personal advice, just what people are thinking and general themes.
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      09-25-2021, 09:35 AM   #13
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Motherducking thread got me going back to look at my portfolio emails I've ignored.
Distributions and junk. I don't know. I'm stupid with money, just shove in bank like squirrels burying nuts in the yard.

Guess I'd better read this thread and start asking some questions ..
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      09-25-2021, 09:39 AM   #14
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With the current economic situation, it has caused me to start thinking a little differently. Especially around taxes. I see all of this intertwined with each other as much of the inflation we're seeing is being affected by monetary policy. Which in turn will affect taxes as you can't keep dumping/printing money without eventually paying the piper. While I made some decent financial decisions, the two things I regret not doing more of was putting more money into non qualified investments and funding my Roth. I was fixing the non qualified situation as I had a substantial amount put away but the divorce screwed that up. The Roth situation I couldn't fix at all. By the time I realized I should have funded my Roth more, I make too much to qualify. I know about doing a Roth conversion but the up front tax bill would just kill me.

So right now, I'm looking to fund my non qualified account as best I can and looking to now start focusing on paying off my houses. My target is to control what my fixed yearly expenses will be in retirement so I can position which tax bracket I would fall under. Not having to pay into a mortgage will go a long ways towards getting myself into a lower tax bracket as I wouldn't have to draw out as much out of my accounts as taxable income.
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      09-25-2021, 09:58 AM   #15
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I have been worried about inflation for several years.
Precautionary actions:
1. Pay down mortgage.
2. Have more than one car that will last long.
3. Build inventories of tools, equipment that you need or will need in the future.
4. Diversify investment: stocks, commodities, gold, even a little bitcoin.
5. Hedging is great idea. However, you can do it with your own business, I don't see how you can do it effectively with personal wealth.
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      09-25-2021, 10:05 AM   #16
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Originally Posted by tom2021 View Post
I have been worried about inflation for several years.
Precautionary actions:
1. Pay down mortgage.
2. Have more than one car that will last long.
3. Build inventories of tools, equipment that you need or will need in the future.
4. Diversify investment: stocks, commodities, gold, even a little bitcoin.
5. Hedging is great idea. However, you can do it with your own business, I don't see how you can do it effectively with personal wealth.
Thanks. I understand 2-5 but why pay down the mortgage assuming it is a fixed rate mortgage?
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      09-25-2021, 10:08 AM   #17
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Quote:
Originally Posted by zx10guy View Post
With the current economic situation, it has caused me to start thinking a little differently. Especially around taxes. I see all of this intertwined with each other as much of the inflation we're seeing is being affected by monetary policy. Which in turn will affect taxes as you can't keep dumping/printing money without eventually paying the piper. While I made some decent financial decisions, the two things I regret not doing more of was putting more money into non qualified investments and funding my Roth. I was fixing the non qualified situation as I had a substantial amount put away but the divorce screwed that up. The Roth situation I couldn't fix at all. By the time I realized I should have funded my Roth more, I make too much to qualify. I know about doing a Roth conversion but the up front tax bill would just kill me.

So right now, I'm looking to fund my non qualified account as best I can and looking to now start focusing on paying off my houses. My target is to control what my fixed yearly expenses will be in retirement so I can position which tax bracket I would fall under. Not having to pay into a mortgage will go a long ways towards getting myself into a lower tax bracket as I wouldn't have to draw out as much out of my accounts as taxable income.
Good points, especially about taxes. Iíd forgotten that tax brackets are not indexed to inflation, meaning as inflation pushes up wages or Social Security income, it also pushes you into a higher tax bracket. So inflation helps government in two ways: deflates the value of the debt, and increases tax revenue.

Curious why you want to pay off houses if you have fixed rate mortgages. Understand completely if they are variable rate (those rates will rise, driving payments up).
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      09-25-2021, 10:10 AM   #18
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Originally Posted by tom2021 View Post
I have been worried about inflation for several years.
Precautionary actions:
1. Pay down mortgage.
2. Have more than one car that will last long.
3. Build inventories of tools, equipment that you need or will need in the future.
4. Diversify investment: stocks, commodities, gold, even a little bitcoin.
5. Hedging is great idea. However, you can do it with your own business, I don't see how you can do it effectively with personal wealth.
Even though I said I am now starting to look at paying off my mortgages, this has to be put into context. I'm 50 and had some thoughts about retiring at 55. But am probably going to keep working as long as I feel up to it. The reason I am looking at paying off my mortgages is because my timeline for retirement is getting close and I'm doing tax planning.

If you still have a long ways from retirement, paying down (aggressively)/paying off your mortgage is the last thing I would do. Especially if you have a low fixed rate interest on your mortgage. It's going to be the cheapest money you can ever get your hands on with the ability to write off interest payments on your taxes. Not to mention the liquidity situation if you need to get access to money you've locked away into your home. If you're young, have a good mortgage on your home, I'd take the extra money you'd put into aggressively paying down your mortgage into the stock market.
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      09-25-2021, 10:15 AM   #19
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Originally Posted by 2000cs View Post
Good points, especially about taxes. Iíd forgotten that tax brackets are not indexed to inflation, meaning as inflation pushes up wages or Social Security income, it also pushes you into a higher tax bracket. So inflation helps government in two ways: deflates the value of the debt, and increases tax revenue.

Curious why you want to pay off houses if you have fixed rate mortgages. Understand completely if they are variable rate (those rates will rise, driving payments up).
I sat down with my financial advisor and he worked some numbers to show what my life would be in retirement. I hadn't even thought about what my tax situation would be in retirement. He did this as a way for me to proactively control what tax bracket I would fall under so I can start thinking of ways to position myself instead of just letting it happen. So the reason why I'm looking to pay off my mortgages even though they're all fixed rate and low interest is because it'll make up a good chunk of my expenses into retirement. If I have them paid off, I don't have to draw that amount out of my retirement accounts which then would be taxable as income. I can keep my draw rate low which then keeps me in a lower tax bracket due to lower annual income. And the side effect is leaving more in my accounts to continue to work towards growth.

Hopefully, what I said makes sense.
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      09-25-2021, 10:19 AM   #20
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Originally Posted by zx10guy View Post
I sat down with my financial advisor and he worked some numbers to show what my life would be in retirement. I hadn't even thought about what my tax situation would be in retirement. He did this as a way for me to proactively control what tax bracket I would fall under so I can start thinking of ways to position myself instead of just letting it happen. So the reason why I'm looking to pay off my mortgages even though they're all fixed rate and low interest is because it'll make up a good chunk of my expenses into retirement. If I have them paid off, I don't have to draw that amount out of my retirement accounts which then would be taxable as income. I can keep my draw rate low which then keeps me in a lower tax bracket due to lower annual income. And the side effect is leaving more in my accounts to continue to work towards growth.

Hopefully, what I said makes sense.
Makes sense. I was thinking if you can earn more in the retirement accounts than you pay on the mortgage, it makes sense to keep the mortgage (especially if the earnings are tax deferred). But you have to be confident in your investment earnings because they are variable and the mortgage is fixed.

BTW Iím retired. I donít think the analysis changes because of that, it would if I planned to die soon but I could go another 30-40 years.
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      09-25-2021, 10:26 AM   #21
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Thanks. I understand 2-5 but why pay down the mortgage assuming it is a fixed rate mortgage?
In Canada, we only can get mortgage rate fixed for maximum 5 years.
The mortgage is amortized for 25 years and the term is renew every 5 years.
Off course, there are variants of amortization years, variable rate, 1 to 5 years fixed rate.
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      09-25-2021, 11:12 AM   #22
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Quote:
Originally Posted by 2000cs View Post
My portfolio is fine and I also hate bonds (they historically underperform in real terms). But that’s not what I’m asking.

Would you shift from autos (limited pricing power) to REITs (fixed asset cost and ability to raise rents) for example?

On the consumption side (business consumer or personal), would you build inventories, buy ahead or try to contract for long-term fixed prices?

How about hedging (financial instead of physical protection)?

Not asking for personal advice, just what people are thinking and general themes.
I participate in a number of financial/investing sites and threads, and don't recommend investments. Invariably the discussion breaks down into discord. Something along the lines of Ford vs. Chevy or mustard vs. ketchup.

I enjoy sharing ideas on trading strategy, portfolio construction and management, market functioning and macroeconomic topics.

When it comes to which investments to hold or to sell, I point to the people who are proven to know what they are doing: Buffett, Lynch, Dalio and many others.

The stock market always goes up in the long term. It is always a bumpy ride to get there. No one knows with certainty when a bump is coming. I think volatility is treated like the boogeyman, especially for articles written for retirees. It is used as a red flag warning that retirees might "run out of money"; this is rubbish. Volatility is generally associated with stronger returning investments. If you are comfortable with volatility, chances are you can earn above market returns. If volatility gives you an upset stomach, buy index funds and forget trying to be an active investor.

On the opposite end of the volatility discussion is cash. I see cash as a useful portfolio volatility-reducing position that also happens to be liquid. Cash is not trash, as Dalio puts it, if it is used strategically. Surplus cash is trash. Each investor defines the meaning of "surplus" for him/herself.

I use stock screeners on the Fidelity and finviz sites, with criteria I have developed over the years. I buy what I know, or that I can understand.

If the investment theory doesn't make sense, it doesn't make sense.

Last edited by chassis; 09-25-2021 at 11:18 AM..
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