Business is booming.

Five Strategies To Consider (And A Bonus)


On December 14, 2021, the Bureau of Labor Statistics (BLS), released data about a significant increase in the Producer Price Index (PPI), the largest increase since the data was first calculated in November of 2010. For the 12 months ending November 2021, the PPI was up 9.6%. PPI is important because it measures the average change in prices received by producers for many products and some services. As the chart below illustrates, there is no question we have some form of inflation. The question is. How do we play defense?

Why Inflation Matters. Inflation is critical to our retirement planning considerations because it sets our ‘real rate of return’, or what we make after inflation. So, if our portfolio is making 3% and inflation is 3%, we are standing still. If inflation is 6% and we’re making 2%, we’re going backwards. Here’s a chart from the Fed to show the Treasury rate minus CPI. Note that we’re in the negative territory:

Components matter. Inflation has been with us about as long as money has existed. Inflation is a measure of purchasing power. Traditionally, there are three versions of inflation: Demand-pull, where there is more demand than production capacity (think cars both used and new, or houses); Cost-push, where the cost of raw materials increases prices (e.g., steel being up several hundred percent); or Built-in, where wages rise as prices rise (real wages are up as a result of the employment situation).  For 2022, it appears all three types are present. Whether this is ‘sticky’ or ‘slippery’ (or both) remains to be seen. In either case, we should consider defensive tactics.

Defense, defense. There are a variety of ‘normal’ defensive tactics for inflation investing. These include:

·       Treasury Inflation Protected Securities (TIPS)

·       Gold

·       Small Cap Stocks

·       Natural resources

·       Real estate

TIPS: Standard Defense. This solution, invented specifically for the purpose of offsetting inflation, is called Treasury Inflation Protected Securities (TIPS). According to, “Treasury Inflation-Protected Securities, or TIPS, provide protection against inflation. The principal of a TIPS increases with inflation and decreases with deflation, as measured by the Consumer Price Index. When a TIPS matures, you are paid the adjusted principal or original principal, whichever is greater. TIPS pay interest twice a year, at a fixed rate. The rate is applied to the adjusted principal; so, like the principal, interest payments rise with inflation and fall with deflation.” In short, a TIPS is a Treasury Bond that is indexed to inflation, where the principal is adjusted to reflect increases or decreases based on the CPI. TIPS pay interest twice a year, and the interest is based on the adjusted basis, so it can vary.

The coupon rate doesn’t change, but the payment does.  Individual TIPS are available direct from the Treasury or are most often bought through a fund or ETF. This sounds easy, so why wouldn’t everyone hedge inflation with TIPS? The answer is ‘negative yield curve’. As of 12/15/21, a 5-year TIPS had a yield of -1.41%, while a 30-year had a negative yield of -0.35%. The negative yield is attributed to the rate on regular treasury bond being lower than the rate of inflation. So, holding individual TIPS will protect against inflation if they are bought directly from the Treasury and held to maturity. On the other hand, a TIPS fund or ETF can buy or sell TIPS at any time, causing the prices to be volatile. As of 12/15/21, the 10-year performance of the iShares TIPS Bond ETF was 3.26%.

Small, But Mighty Bonus: I-Bonds. Another inflation-protected Treasury security with some strong inflation-protection properties is the I-bond. Unlike a TIPS, an I-bond pays interest based on a fixed rate plus the rate of inflation. As of 12/15/21, I-bonds pay an initial interest rate of a remarkable 7.12%. This rate is good through April 2022. I-bond interest is federally taxable, but not subject to state and local income taxes. You can cash them in after 1 year at face value. If you cash them before 5 years, you lose 3 months of interest. They can be bought electronically through Treasury Direct, up to $10,000 per calendar year.

Gold: All That Glitters. Gold is historically regarded as an inflation hedge, although it is probably better characterized as a currency hedge. There are a number of ways for investing in gold, ranging from the base metal, or an ETF that buys the base metal like GLD; to buying gold mining stocks or a fund or ETF that buys miners. But is it a hedge? On August 15, 1971, Richard Nixon announced that he had taken the US off the gold standard. Since that time, we’ve had some serious bouts of inflation. According to a study by Robert Arnott, gold sometimes worked and sometimes didn’t:

During the 1973-79 timeframe. Gold handily outperformed inflation, REITs, and Commodities. However, in the next two rounds, 1980-84 and 1988-91, gold actually has a negative return during inflationary periods. If we measure from the time the US dropped the gold standard, Gold returned, from 1971-2019, 10.61%, slightly less than stocks or commodities. For a fun look at gold over 3,000 years, have a look at Claude Erb’s paper.

Small Cap Stocks. The theory here is simple: small companies are more nimble and can pass on price increases to customers more easily. History seems to bear this out when we compare inflation-adjusted returns from 1969:

Natural Resources. Natural resources are also widely considered an inflation hedge since raw material price increases tend to correlate with inflation. There is a difference between the underlying commodities and commodity producers. Producers tend to behave more like stocks. In the 1973-79 high inflation period and in 1988-1991, commodities outpaced inflation. In the period 1980-1984, commodities had a positive return, but failed to keep up with inflation.

Real Estate: They Aren’t Making Any More of It. In each of the three higher inflation periods in the last 50 years, only Real Estate Investment Trusts (REITS) have provided a return greater than inflation. Real estate rents and real estate values tend to rise in inflationary times, which gives a REIT a steady cash flow stream. REITs can be invested in though the REIT itself, or through a fund or ETF. REITs have special tax treatment as well, which can change the after-tax return in taxable accounts.

Bottom Line: Diversify. Whether we are in a period of sticky or slippery inflation (or both), diversifying makes sense. Remember to rebalance your portfolio, maybe shifting some weight to small caps, real estate, and commodities. Also, don’t forget the I-bond: 7.12% on a government security is pretty darn good. As always, I’ll try to answer questions:

Source link

  1. Iteunh says

    levofloxacin 250mg usa levaquin 500mg oral

  2. Qokiek says

    order avodart for sale flomax canada purchase ondansetron without prescription

  3. Coties says

    buy spironolactone 25mg buy fluconazole 200mg online oral fluconazole 200mg

  4. Ixbilq says

    buy acillin without prescription ampicillin over the counter erythromycin 250mg ca

  5. Wpfftg says

    fildena 50mg generic buy generic robaxin 500mg methocarbamol uk

  6. Ulgtre says

    cost suhagra sildenafil 50mg pills order estradiol for sale

  7. Mohptz says

    order lamictal 200mg generic vermox price tretinoin online

  8. Ehprlm says

    tadalis 10mg price order avanafil 200mg pills purchase voltaren sale

  9. Xqgceg says

    generic indomethacin 75mg indomethacin usa brand amoxicillin 250mg

  10. Fydrib says

    cialis 10mg drug cialis 20mg tablets cheap sildenafil pill

  11. Ryjods says

    order generic arimidex 1 mg Canada viagra generic sildenafil online

  12. Wawnif says

    cialis sans ordonnance en pharmacie sildenafil 100mg en ligne acheter 25mg gГ©nГ©rique viagra en france

  13. Ulpcrx says

    tadalafil 20mg kaufen ohne rezept cialis 10mg für männer viagra 100mg für frauen

  14. Xmhpai says

    buy provigil 100mg online cheap acetazolamide 250mg tablet order diamox 250 mg

  15. Yykcly says

    doxycycline pills lasix us order furosemide 100mg pill

  16. Wgbgwq says

    buy altace 10mg buy generic temovate buy generic azelastine

  17. Togkpw says

    clonidine 0.1mg generic buy meclizine online cheap tiotropium bromide 9 mcg cost

  18. Jigxzd says

    buspar over the counter ditropan 5mg cheap oxybutynin 5mg brand

  19. Pxijua says

    buy terazosin 1mg for sale order arava 20mg online azulfidine 500 mg tablet

  20. Bciufl says

    fosamax pill ibuprofen 600mg drug order generic famotidine

  21. Rundlm says

    olmesartan 10mg over the counter generic diamox acetazolamide order

  22. Amuryc says

    tacrolimus 1mg generic labetalol canada order generic urso 150mg

  23. Zuhjfd says

    order isosorbide pill imuran drug telmisartan 80mg price

  24. Xlrpbw says

    zyban online order bupropion oral buy quetiapine pill

  25. Yihinj says

    molnupiravir 200mg sale buy generic naprosyn 500mg purchase lansoprazole generic

  26. Xpzzry says

    buy zoloft for sale Order viagra usa sildenafil canada

  27. Cteghm says

    order imuran 100 mcg sildenafil generic sildenafil 100mg canada

  28. Pvkwwt says

    cialis 10mg buying viagra in london order viagra 50mg online cheap

  29. Yxljsl says

    cialis tadalafil 5mg cheap cialis sale symmetrel drug

  30. Xmbowt says

    revia 50mg usa buy naltrexone online cheap buy aripiprazole 30mg sale

  31. Ntphtn says

    medroxyprogesterone 10mg canada order medroxyprogesterone 10mg generic periactin online order

  32. Zexcet says

    order provigil 200mg modafinil 100mg generic ivermectin for human

  33. Uqgdmv says

    purchase luvox buy ketoconazole generic glipizide pills

  34. Onvkcz says

    buy isotretinoin sale purchase deltasone deltasone 20mg drug

  35. Ojgker says

    piracetam without prescription order nootropil sale order sildenafil

  36. Bqlrly says

    buy zithromax without prescription prednisolone 20mg price order neurontin 800mg online

  37. Gpmjpf says

    cialis generic sildenafil 100mg us viagra 200mg

  38. Nycegi says

    lasix 100mg us purchase furosemide for sale order plaquenil 200mg generic

  39. Xckfms says

    cialis 5mg over the counter buy generic betnovate 20 gm order clomipramine for sale

  40. Jgaihs says

    aralen ca chloroquine pills olumiant pills

  41. Powvqr says

    metformin 500mg cost buy metformin 500mg online cheap cialis 10mg drug

  42. Jcccmj says

    olanzapine 10mg for sale nebivolol order online purchase diovan online

  43. Jnpegh says

    buy norvasc 10mg online cheap buy amlodipine online cialis 5mg pills

  44. Bwflpz says

    order clozapine clozaril tablet order decadron 0,0,5 mg generic

  45. Yubdqi says

    sildenafil mail order lisinopril cost brand lisinopril 2.5mg

  46. Cskctz says

    order omeprazole 20mg online cheap real poker online gambling game

  47. Kfwkfi says

    linezolid cheap play casino games for cash doubleu casino

  48. Wxenyq says

    metoprolol pill lopressor 100mg uk buy levitra 10mg

  49. Uuxzpe says

    custom dissertation write essay service no deposit bonus codes

  50. Adcjed says

    order levitra 10mg online methylprednisolone pills medrol brand name

  51. Jhlugp says

    buy essay now custom dissertation sildenafil australia

  52. Dkafgo says

    order clomiphene 100mg for sale blackjack games free poker online games

  53. Zmstjg says

    tadalafil 10mg drug viagra pill cost sildenafil

  54. Jsxgei says

    triamcinolone 10mg pills loratadine pills oral desloratadine

  55. Xhfcdp says

    dapoxetine 90mg tablet synthroid 75mcg usa buy synthroid 75mcg online cheap

  56. Demgnw says

    buy cialis 10mg for sale viagra 50mg oral levitra or viagra

  57. Trwgzk says

    cheap orlistat 120mg orlistat pills zovirax 800mg brand

  58. Znnbaq says

    tadalafil 10mg cheap order clopidogrel generic buy plavix 75mg online cheap

  59. Sfrgog says

    zyloprim price order crestor 20mg ezetimibe buy online

  60. Eqjjpn says

    buy domperidone 10mg online motilium cheap buy flexeril 15mg online

  61. Wgaowu says

    cost cozaar 25mg cheap topamax 100mg topiramate buy online

  62. Aqznby says

    order ozobax buy tizanidine 2mg online cheap toradol tablet

  63. Cdxpdk says

    imitrex 50mg pill sumatriptan 25mg cost avodart 0.5mg pill

  64. Zifgry says

    buy generic colchicine gloperba sale play slots for real money united states

  65. Ywvodf says

    zantac for sale meloxicam 15mg sale cheap celecoxib

  66. Zkxakx says

    play blackjack casino games online slot games free world series of poker online

  67. Fkcivm says

    buy tamsulosin 0.4mg sale zofran order online order aldactone 100mg generic

  68. Xuxxrd says

    us cialis sales cheap cialis without prescription cipro order online

  69. Rthvyw says

    zocor 20mg cost buy generic valtrex buy proscar 1mg online

  70. Vfwfdt says

    flagyl cost buy generic bactrim trimethoprim without prescription

  71. Yzfhtd says

    fluconazole 200mg pills sildenafil 100mg sale order sildenafil 100mg

  72. Bbczfa says

    order keflex without prescription buy erythromycin 500mg pills buy erythromycin 250mg online

  73. Lcsyub says

    tadalafil india order tadalafil 5mg without prescription buy viagra 100mg online cheap

  74. Nbrlgc says

    viagra pills 25mg viagra 100mg england tadalafil online order

  75. Ioaral says

    ceftin pill buy cefuroxime 500mg for sale robaxin 500mg drug

  76. Yprrsp says

    online casino slots slot machine generic tadalafil 40mg

Leave A Reply

Your email address will not be published.