Gold, REIT ETF’s, High Dividend Funds - inflation hedges
Discussion
BorkBorkBork said:
Given the inflationary pressures at the moment, what are everyone’s thoughts on the safest hedges?
I read that Gold (although this seems to be a contentious issue), Real Estate Investment Trusts and High Dividend yielding companies could be worth looking at?
Any thoughts?
Unless your objectives have changed I'm not sure why you'd make any changes to your portfolio.I read that Gold (although this seems to be a contentious issue), Real Estate Investment Trusts and High Dividend yielding companies could be worth looking at?
Any thoughts?
I raised this question some time ago. It seems to me that when something as fundamental as inflation quintuples from 2 to 10% it might warrant different investment choices. But it seems not. So maybe inflation is irrelevant to investments? Certainly IM, who are more reactive than most, haven't launched a 'High Inflation' portfolio, and DC above agrees. So why is that?
Derek Chevalier said:
Simpo Two said:
So maybe inflation is irrelevant to investments?
Your plan and portfolio will hopefully have been stress tested to cope with far, far worse than this - the 70s being an example.Gold ownership does seem to be very contentious for 'us' however..........
"Up until 2009, the year of the worst economic crisis since the Great Depression, central banks were net sellers of gold, mostly to increase their holdings of U.S.-denominated assets like U.S. Treasury securities.
In 2009, driven by worries over global currencies and economic uncertainty, central banks turned from net sellers to net buyers of gold for the first time in 20 years.
Since 2010, central banks have been consistent net buyers of gold (although there were also several instances of monthly net sales in 2016 and 2020).
Last year, central banks around the world bought a total of 463 tons of gold. That’s 82% more than in 2020!"
Rueters
"One of gold’s primary roles for central banks is to diversify their reserves. The banks are responsible for their nations’ currencies, but these can be subject to swings in value depending of the perceived strength or weakness of the underlying economy. At times of need, banks may be forced to print more money, since interest rates, the traditional lever of monetary control, have been stuck near zero for over a decade. This increase in money supply may be necessary to stave off economic turmoil but at the cost of devaluing the currency. Gold, by contrast, is a finite physical commodity whose supply can’t easily be added to. As such, it is a natural hedge against inflation.
As gold carries no credit or counterparty risks, it serves as a source of trust in a country, and in all economic environments, making it one of the most crucial reserve assets worldwide, alongside government bonds.
So in times of uncertainty all central banks buy Gold, but if you do it as an individual you are almost considered a fruitcake!
"Up until 2009, the year of the worst economic crisis since the Great Depression, central banks were net sellers of gold, mostly to increase their holdings of U.S.-denominated assets like U.S. Treasury securities.
In 2009, driven by worries over global currencies and economic uncertainty, central banks turned from net sellers to net buyers of gold for the first time in 20 years.
Since 2010, central banks have been consistent net buyers of gold (although there were also several instances of monthly net sales in 2016 and 2020).
Last year, central banks around the world bought a total of 463 tons of gold. That’s 82% more than in 2020!"
Rueters
"One of gold’s primary roles for central banks is to diversify their reserves. The banks are responsible for their nations’ currencies, but these can be subject to swings in value depending of the perceived strength or weakness of the underlying economy. At times of need, banks may be forced to print more money, since interest rates, the traditional lever of monetary control, have been stuck near zero for over a decade. This increase in money supply may be necessary to stave off economic turmoil but at the cost of devaluing the currency. Gold, by contrast, is a finite physical commodity whose supply can’t easily be added to. As such, it is a natural hedge against inflation.
As gold carries no credit or counterparty risks, it serves as a source of trust in a country, and in all economic environments, making it one of the most crucial reserve assets worldwide, alongside government bonds.
So in times of uncertainty all central banks buy Gold, but if you do it as an individual you are almost considered a fruitcake!
Look at what the all-weather funds do for some inspiration.
There isn't universal agreement but things such as TIPS, index linked bonds, gold, property and infrastructure seem to figure alongside more traditional equities.
Of course the counter to that is you have Vanguard who still don't look beyond stocks and high quality bonds.
There isn't universal agreement but things such as TIPS, index linked bonds, gold, property and infrastructure seem to figure alongside more traditional equities.
Of course the counter to that is you have Vanguard who still don't look beyond stocks and high quality bonds.
Derek Chevalier said:
BorkBorkBork said:
Given the inflationary pressures at the moment, what are everyone’s thoughts on the safest hedges?
I read that Gold (although this seems to be a contentious issue), Real Estate Investment Trusts and High Dividend yielding companies could be worth looking at?
Any thoughts?
Unless your objectives have changed I'm not sure why you'd make any changes to your portfolio.I read that Gold (although this seems to be a contentious issue), Real Estate Investment Trusts and High Dividend yielding companies could be worth looking at?
Any thoughts?
b
hstewie said:
hstewie said: Look at what the all-weather funds do for some inspiration.
There isn't universal agreement but things such as TIPS, index linked bonds, gold, property and infrastructure seem to figure alongside more traditional equities.
Of course the counter to that is you have Vanguard who still don't look beyond stocks and high quality bonds.
I was considering something like this from Vanguard:There isn't universal agreement but things such as TIPS, index linked bonds, gold, property and infrastructure seem to figure alongside more traditional equities.
Of course the counter to that is you have Vanguard who still don't look beyond stocks and high quality bonds.
https://www.vanguardinvestor.co.uk/investments/van...
And maybe investing in some REIT ETF’s via eToro.
BorkBorkBork said:
bhstewie said:
hstewie said: Look at what the all-weather funds do for some inspiration.
There isn't universal agreement but things such as TIPS, index linked bonds, gold, property and infrastructure seem to figure alongside more traditional equities.
Of course the counter to that is you have Vanguard who still don't look beyond stocks and high quality bonds.
I was considering something like this from Vanguard:There isn't universal agreement but things such as TIPS, index linked bonds, gold, property and infrastructure seem to figure alongside more traditional equities.
Of course the counter to that is you have Vanguard who still don't look beyond stocks and high quality bonds.
https://www.vanguardinvestor.co.uk/investments/van...
And maybe investing in some REIT ETF’s via eToro.
https://www.msci.com/documents/10199/74fe7e16-759e...
Simpo Two said:
Scootersp said:
Gold, by contrast, is a finite physical commodity whose supply can’t easily be added to. As such, it is a natural hedge against inflation
Bitcoin is finite as well 
Whether or not that makes it a hedge against inflation I'm not sure....But then Gold was illegal to hold in America from 1933 to 1974 so ultimately they can decree/confiscate anything if so inclined.
If inflation of energy particularly continues, then prices of commodities has to rise and/or we use less, we all ultimately have to pay at the very least what it costs to produce?
Simpo Two said:
I'm not aware of anyone, IFA or otherwise, in the 25+ years my pile has accumulated, ever saying 'This is stress-tested to 10% inflation' (or 15% or 20%).
Retirement planning has moved on a lot over the last few years, both in terms of products, historical data and tools to crunch that historical data. (I assume we are talking about retirement planning as inflation has the potential to wreak more havoc vs the accumulation stage).Simpo Two said:
What inflation level do you allow for when planning clients' portfolios
We look back at how their retirement plan would've fared given historical scenarios and what changes to spending (if any) would be necessary were something similar to happen today. It's very much a personal choice between how much flexibility they are willing to adjust their spending by if we have a truly rubbish series of returns.But if you look at the 1970s, both in terms of market falls and inflation, you will see that the current situation, with markets broadly flat over the last 12 months and inflation circa 10% is benign by comparison.
Just to add, even if we had a rerun of the 70s, it would be unlikely that the portfolio would need altering - we have over a century of data to prove that it "works", and expect it to continue to do so.
Scootersp said:
As such, it is a natural hedge against inflation.
Would be useful to see some evidence of that.https://www.nber.org/system/files/working_papers/w...
". We critically examine popular stories such as ‘gold is an inflation hedge’. We show that gold may be an effective hedge if the investment horizon is measured in centuries. Over practical investment horizons, gold is an unreliable inflation hedge."
Too much volatility
Some charts here
https://youtu.be/UDHJh8CXTVQ?t=1571
Scootersp said:
So in times of uncertainty all central banks buy Gold, but if you do it as an individual you are almost considered a fruitcake!
I don't see the point in tinkering with a portfolio to suit current market conditions. That being the case, and given gold's volatility and long term returns, it can be challenging to make the case for it to be in a portfolio.bhstewie said:
hstewie said: There isn't universal agreement
TBH I don't see much disagreement between the people that have crunched the data. I have seen inflation-linked bonds in one portfolio, but other than that they are very similar. Equities: Broad market exposure with tilts to small-cap value (and potentially EM).
Bonds: Short medium-term duration investment grade.
Derek Chevalier said:
I don't see the point in tinkering with a portfolio to suit current market conditions. That being the case, and given gold's volatility and long term returns, it can be challenging to make the case for it to be in a portfolio.
Essentially what it comes down in the first pdf link you posted is per the page 2 abstract that I'm more a 1) and you are more a 2)?Some see value in it, some don't......I see more value in it than cash in the long run, you just think/know funds, S&P etc will do even better so why bother with it?
Scootersp said:
Essentially what it comes down in the first pdf link you posted is per the page 2 abstract that I'm more a 1) and you are more a 2)?
2) embrace a view that the emergence of new markets represent a structural change and ‘this time is different’."
I'm not sure anything is or isn't different - all we have is the past to go on, and over that time period the risk/return characteristics have been poor vs other asset classes.2) embrace a view that the emergence of new markets represent a structural change and ‘this time is different’."
Scootersp said:
I see more value in it than cash in the long run
It's certainly given a far greater historical return, but obviously at a far higher volatility.Gassing Station | Finance | Top of Page | What's New | My Stuff