Favorite hedge against inflation?

Well folks,

The war in Iraq and the recent bank bailouts have made me gravely concerned about the health of the US Dollar. And my 3% savings account at emigrantdirect.com isn’t as comforting as it had once been.

Gold looks awfully pricy. Trading in foreign currency seems complicated. Does anyone have any reliable hedges against inflation? Joke answers are welcome, as are serious alternatives.

TIPS are worth looking at.

Also at treasury direct look into Ibonds. I have some bought back in '05 that are earning around 6% now. They get their rate from the CPI and inflation rate IIRC. One rate sticks with the life of the bond, the other rate fluctuates every six months. The next rate change will happen at the end of OCt I am curious to see what the next index will be at, as currently it is at 0. It can’t go less than 0 can it?

But they limit purchases to 5k a year, bummer.

Historically, the best hedge against inflation has been the stock market. Over long periods of time, inflation has been in the 3 - 4 % range, while stock market return is in the 10 - 11% range.

If this is long-term money (i.e., you won’t need it for at least 5 years) I’d recommend putting it in an index fund and forgetting it. If this is short-term money that you will need in the next 5 years, inflation isn’t going to affect it much. Unless we get into a high inflation period. Even then, earned interest alleviates some of the inflation bite. (e.g., you’re earning 3% now when inflation is, say, 4 - 5%, so that’s only 1 - 2% loss per year to inflation). If high inflation hits and we have 10% inflation, you can still earn maybe 8% interest (all numbers are SWAGs, of course), making your real inflation loss only 2%.


I was going to mention these, too, but it’s been awhile since I bought any. Do they still guarantee that they will appreciate faster than inflation? They used to say that they adjusted the rate every six months to beat the CPI. Is this still true, do you know?

Real Estate. A large part of the cost of living is housing. The price of your house isn’t going to rise on you if you own the damn thing already.

I think you need to read up on the current Mortgage crisis.

Have you been paying attention? Like, at all?

Debt is the best hedge against inflation.

If you borrow $100 today to buy a TV and pay it off in tomorrows worthless dollars you come out ahead of the game. Especially if you can fix the interest rate while it’s low.

That’s how the big boys do.
So get out the there and buy that Gulfstream now!

Heh. I remember the days of flamewars when I was trying to convince people that buying a house was madness when they were sitting on the biggest speculative asset bubble in history. The search doesn’t go back that far but the earliest one I can find is here.

Oh, but I use to take the boards so seriously back then. Tell me, have you guys figured out the Iraq war was a bad idea yet?

Seriously. Any measure of real inflation is by proxy also a measure for the price of housing - everyone needs to buy it in one form or another, and for most households, it is their biggest single expenditure. As Mongo Ponton correctly states, since most residential housing in the developed world is purchased with debt, it adds yet another layer of protection from inflation. The US is somewhat uniquely situated in that mortgages with interest rates fixed for the entire amortization period are readily available to borrowers - even in most developed countries like Canada and the UK, interest rates are only fix-able for 5 years or so. That is, the rest of the world buys houses with what you guys would call ARMs. Lord knows how our economies haven’t collapsed yet.

That’s why, conversely, the cost of housing MUST, in the long run, also track inflation. It has historically been thus, and any extended period of nationwide house price appreciation beyond that of inflation is a sign that housing is overbought.

Ice Cream and Pie. During inflationary times I have never regretted soothing my personal depression with sweet and creamy treats

I forgot about Ice Cream and Pie.