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.
[1]: https://www.thebalance.com/what-is-market-timing-357213#mntl...
"Buy now, sell decades later" is a very close approximation to "buy low, sell high."
Modern currency like USD is not intended as a store of value, it's intended to facilitate transactions. You should only have it when you need to do transactions. Otherwise you should be invested in assets that you believe will grow over time.
There is no reason to believe the value of USD will grow over time. It's not backed by any commodities and the government prints more of it as it sees fit, with a target inflation rate that's intended to devalue the dollar over time, by design.
In other words, dollars are good for convenient transactions, but you generally wouldn't buy them as an investment.
> it's not impossible to purchase something beyond its fair value.
By definition the price at which an asset trades is the fair value.
> 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.
The entire world economy is a fiction, but that doesn't change how it works. A lot of "gold bugs" had to learn this the hard way. The entire world is invested in this fiction.
> 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.
Because it is. Dollars are for transacting.
> 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 ... That's NOT MARKET TIMING.
It is market timing, but trying to time the market can be fine. People say "time in the market beats timing the market", and that's true on aggregate, but there are personal reasons why individuals may want to take on additional risk by trying to time the market for greater gains.
> The whole attitude industry-wide is gross and conflicting to me.
Yes.
> Buy low, sell high! Buy and hold forever! Yeah, but what is "high"? And why would you hold something that is dying?
Don't do this. Buy assets that you believe will appreciate over time relative to other assets. In other words, try to make good bets.
If your bets are working and will continue to work, or you believe your bets will work over time, then keep holding and borrowing as you need dollars.
If you believe you've made a bad bet, take your losses and reinvest into hopefully better bets.
Taxes are a big factor in the decision to sell, but generally, you want to borrow instead of sell when you can.
> 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.
This has nothing to do with studies. The US Dollar is designed to lose value relative to other assets over time. You have to allocate your dollars into other assets to mitigate this effect.
No it isn't. It's the market value.[1]
> The entire world economy is a fiction
You are delusional.
> It is market timing,[...]
No it isn't, but people overwhelmingly believe it is.[2]
> This has nothing to do with studies. The US Dollar is designed to lose value relative to other assets over time. You have to allocate your dollars into other assets to mitigate this effect.
What are you talking about? This is a non-sequitur. My assertion is there aren't well covered, multiple independent academic studies to answer questions like, "If you invested consistently into US equities during periods of overvaluation versus holding bonds, cash, or cash equivalents would your performance over time have surpassed a 100% equity portfolio with no rebalancing?" Instead you ramble on about the US dollar. Yes, it's common knowledge inflation targets exist; that's not my point.
You don't even seem to have remedial knowledge of what I'm talking about.
For example, it's common knowledge that 60/40 portfolios are subject to less volatility than 100% equity portfolios, but within 100% equity portfolios are there instances in which you want to wait for mechanical limits to come down?[3] I believe there are.
[1]: https://www.investopedia.com/terms/f/fairvalue.asp#mntl-sc-b...
[2]: https://www.thebalance.com/what-is-market-timing-357213#mntl...
[3]: Security Analysis, 6th ed, Chapter 39, p. 497
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).
U.S. government TIPS or I-bonds
https://www.thebalance.com/comparing-tips-to-i-bonds-2388668
Not investing advice.
and if i plant winter wheat...
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.
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.
Interested to hear more about this as I also have MS and share your concerns of having a time-limited career.
The way cash enters into this:
- Find some very small local non-profits or charity organizations. Find out what their average donation is, and then give them double for the next X years. Bonus points if it's a non-profit or organization that does something you might need in the future. Often you'll get to know their leadership. This is by far the main one.
- I'm upper-middle class but from a working-class background, so I help people with things like legal expenses, because a lot of people get screwed but can't do anything about it. Likewise, I might kick in for a deposit somewhere if somebody's living in unsafe conditions but can't move because they can't come up with an extra ~$700. This kind of thing you only do if the person's legit, obviously.
- I buy things that I can lend to other people/make relationships over. Have a snowblower? Lend it to my neighbor. Same with tools. I try to make myself a good neighbor to have. (Not just with cash, but that's one asset I have).
- Join spaces that put you in contact with others. Co-working spaces, maker spaces, etc. Take classes, get to know people. Bonus if the classes are something that will allow you to barter in the future if you're income-limited. Convert your cash into skills you can retain and barter with in the future.
This stuff also increases your network radically, which can be helpful if you need to suddenly make a career switch, or drop down to part-time.
This is easier to do in a small town or city, for obvious reasons. Standing out in NYC or SV probably isn't as possible on a software dev salary, but it is in plenty of smaller locales.
I don't know how it's going to work, but obviously the standard advice is less applicable in our situation.
This also allows you to easily shift how many assets/how much cash on hand you have, which can be key for affording financial assistance through a relapse, since so many programs will bleed you dry first and then be shocked you continue to need help.
Most of all invest in your community and relationships. Those are always the best prep, whether we're talking financial or disaster preparedness.
- Gold
- The Yield Curve (long US2Y, short US10Y)
- NASDAQ 100
- Bitcoin
- US cyclicals (long)/US defensive (short)
- AUDJPY
- TIPS (Treasury Inflation-Protected Securities)
- GSCI (Goldman Sachs Commodity Index)
- JPM Emerging Market Currency Index
Another is that TIPS are disputed as a good inflation hedge. One reason for this is that they are indexed to the CPI, which, some argue, significantly understates real inflation.
With inflation already raging, the upside on these bets might not be great if placed in March 2022. Of course, if you expect high inflation to be persistent, these may still be viable.
[1] https://www.docdroid.net/H1fuimX/the-great-monetary-inflatio...
OPs q is “what” to invest in given that one can’t hold cash when inflation is rampant.
I’m just continuing to buy us equities with a tilt towards the nasdaq 100. But I have no idea how that will work out in the next 10years.
The other option is to just make as big downpayment as I can (200-400k) in the Bay Area but not really sold on living here long term.
Not really. Even if you did everything in that list, its a tiny slice of the universe of invest-able assets. This is a quite specific, prescriptive list of things to hold as alternatives to cash in the current period of high inflation. Now, the opportunity may have been traded away in the time since this was published. Commodities, for example, have seen significant price appreciation.
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.
They are guaranteed to match a specific US govt inflation measure.
The $64k question is whether that measure is realistic and competitive. Does it include housing? Energy? Food?
It's quite a big issue for small investors that C-suite pay makes stock less attractive. Leads to a lot property being over priced and that badly affects people wanting to live in the property.
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.
For that reason, all the best ways to deal with inflation have just shot up in price to the point where yields are unattractive.
It's like asking "where do I get a cheap umbrella now that it's raining?", it's basically too late, the trick is to account for the risk before it is realized.
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.
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.
[does money have other relevant purposes?]