Inflation: How to prepare?

behaviorkeltonApril 27, 2009

Dave suggests that inflation in our future.

#1. That's right, Dave has reached the point that you merely need to say his first name in this forum. Kinda like Cher or Madonna... or rather, Sting.

#2. More to the point: So what are the strategies best suited for inflation? Gold? Specific sectors of the stock market?

BK

Thank you for reporting this comment. Undo
haus_proud

Gold, about 5% or less of your investment assets. Could be gold coins (American Eagle, Canadian Maple Leaf, or whatever); or, an ETF that's indexed to the price of gold. I bought our coins before the ETFs were around. Today, I would opt for the ETF, because it's easier. With coins, if you're selling, you have to ship them & insurance costs a lot. Another alternative is something like Vanguard Precious Metal mutual fund. That one invests in gold mining stocks and stocks of companies of other precious metals like platinum, nickel and a bunch of others I've never heard of. It's a little less volatile that a straight gold strategy, because it's diversified across the other metals.

Of course Energy prices are also likely to rise, so something Vanguard Energy mutual fund might be good. It soared last year when gas was selling at $4/gallon, and then fell when the price of gas declined.

As for me, we bought our gold a few years ago, and some shares of Vanguard Precious Metals and Energy funds. So I think we're set. I didn't "plan" for inflation. I just assumed about 10 years ago that some day if there is a collapse in the economy, gold could go to $2-3K per ounce, or even more. That's when I'll sell to meet living expenses, so I don't have to sell stocks at a loss to make ends meet.

    Bookmark   April 27, 2009 at 4:05PM
Thank you for reporting this comment. Undo
dave_donhoff

Hi Kelton,

#1. That's right, Dave has reached the point that you merely need to say his first name in this forum. Kinda like Cher or Madonna... or rather, Sting.

HAH!!!! (Leaving aside Sting comparisons regarding trantric accomplishments....)

"BEST" and "easiest" are different questions.

EASIEST are precious metals (the specie, not paper proxies. Actually, proxies are the easiest, but least secure.)

BEST (in my opinion) would capture the benefits of monthly cashflow/yield, leverageability (more control for less of your own cash, and using a locked balance of other's cash which is decaying at the rate of inflation. The BEST asset for this purpose is residential rental real estate.

Cheers,
Dave Donhoff
Leverage Planner

    Bookmark   April 27, 2009 at 5:27PM
Thank you for reporting this comment. Undo
western_pa_luann

Dave!
I had no idea you are that famous!

    Bookmark   April 27, 2009 at 7:14PM
Thank you for reporting this comment. Undo
dave_donhoff

In my own little mind I be ;~)
D

    Bookmark   April 27, 2009 at 7:30PM
Thank you for reporting this comment. Undo
cmarlin20

In my own little mind I be ;~)
D

Ohhhh, the wonderful power of the internet...

may yours be longer than 15 minutes.

    Bookmark   April 27, 2009 at 9:02PM
Thank you for reporting this comment. Undo
behaviorkelton

Being a landlord?

That is certainly not the easy way, but it is an interesting idea.

I'm thinking of refinancing my paid-for house at this crazy low rate. At this "rate", it is hard to argue against it...right?

    Bookmark   April 28, 2009 at 1:22PM
Thank you for reporting this comment. Undo
dave_donhoff

Hi Kelton,

I'm thinking of refinancing my paid-for house at this crazy low rate. At this "rate", it is hard to argue against it...right?

Ahhhh Kelton... while it *MAY* be hard to argue against, I'm QUITE confident there'll be PLENTY of folks who'll step up to the plate and have a swing... ;~)

Dave

    Bookmark   April 28, 2009 at 3:31PM
Thank you for reporting this comment. Undo
behaviorkelton

Well, let's say that one finances their paid-for house, but does nothing special with the money received. Just a money market getting well under 2%.

Does this have any merit?... or does refinancing demand that the money get invested in a riskier prospect?

    Bookmark   April 29, 2009 at 7:09AM
Thank you for reporting this comment. Undo
cmarlin20

Well, let's say that one finances their paid-for house, but does nothing special with the money received. Just a money market getting well under 2%.

Does this have any merit?... or does refinancing demand that the money get invested in a riskier prospect?
Doing "nothing special with the money" is not using it to its fullest advantage, not good leverage, you're going to pay more than 2% for your money. What is the advantage, it is only good to hold it there while looking for your real investment.
Residential real estate is not a risky prospect, the tenant is paying your mortgage, over time your RE will increase in value.
Risky is buying in a bad area (Detroit comes to mind), or buying for the short term. It is possible to find very good, stable tenants, buy in a desirable area. I don't know your area, but in mine RE gives so many benefits. I don't know the future prospects of the tax advantage, but in the past it has been good.

    Bookmark   April 29, 2009 at 10:02AM
Thank you for reporting this comment. Undo
dave_donhoff

Hi Kelton,

Well, let's say that one finances their paid-for house, but does nothing special with the money received. Just a money market getting well under 2%. Does this have any merit?...

It *might*... which brings a few questions to the forefront;
A) WHY would someone "do nothing special" with their equity?
If it is because there is nothing CURRENTLY that beats a 3% after-tax cost of money... what is the likelihood of inflation dramatically increasing rates (paid on deposits) in the future? It is EXTREMELY likely, I would suggest. When that time comes, the window of opportunity to CAPTURE the 3-4% mortgage leverage will be a distant memory.

B) If your cost of money is 3-4%, and your "nothing special" yield is 2%, you have a current NET cost-of-liquidity of 2%-ish. When you run into either a super-duper opportunity in the future (let's all hope!) or a super-duper emergency/tragedy in the future (God forbid... but better to be prepared,) then how much is that available-cash worth to you at that time?

If its tied up in your real estate, what will it THEN cost you to access it (if you even qualify at that time, considering the character of the "emergency.")

If you have to use alternative borrowing because its inaccessible, what might THAT cost you at that point of desperation?

If you simply cannot access your equity from ANY resource, and you suffer the consequences of the desperation or emergency at that future point in time, what is your potential scope of losses?

Lots of "IFs" to consider... but a current 2%-ish "cost of safety & security" (which is very likely to become a positive rate of return whenever inflation hits, or a "safety net" in cases of emergency) is relatively safe & boring in comparison. Superior "insurance" in my mind.

Cheers,
Dave Donhoff
Leverage Planner

    Bookmark   April 29, 2009 at 2:28PM
Sign Up to comment
More Discussions
Here's a question for those who pay with cash
It happens occasionally, I'll be in a checkout line...
SnidelyWhiplash
Programmable Thermostat proof
Does anyone have hard copy proof of the savings that...
rjexit5
anyone had trouble getting an Amex card accepted?
I have an Amex card with a very good cashback program,...
davidrt28 (zone 7)
Ontario - Canadian law question
Hi: I am hoping I can find someone on the forum who...
mistopheles52
refinancing a home
Just learned my interest is 5.25 on our home morgage....
victory_tea2085
People viewed this after searching for:
© 2015 Houzz Inc. Houzz® The new way to design your home™