I like the Mother-In-Law indicator. When My MIL tells me to buy something, I sell and when she tells me to sell, I buy. If she tells me there is going to be a recession my confirmation bias turns positive.
Bought US TIPS last November and not hedged they have done OK but took the thinking US would raise rates strongly giving be the currency boost back to pounds so more complex thinking when buying these types of bonds
Sticking with my plan to invest a lump sum (when it comes through) with IGLA as my bond fund. Keeps falling so probably a good time to buy this with a long-term outlook. 80/20 split. Equities in a Global Index Fund. Turn the news off, rebalance every year or so. Sleep easy.
Hi Ramin, Another great video. As a soon to be pensioner my priority is to protect my savings against the ravages of inflation. I'm less concerned about income or capital gains. I was surprised to see the poor performance of some of the TIPS etfs. They've practically halved this year alone! In the currently inflationary environment I can't see any logic in holding non inflation linked bonds or gilts. I know you can't give financial advice but what are your thoughts on which option is best for someone who just wants to protection their spending power? I already hold 20 percent of my portfolio in equities and 80 percent cash, the latter which of course I'd rather not hold but am nervous about the stock market right now.. I'd say the inflation rate for the next ten years will be well above 3 percent!
Could I just ask for a clarification? When you look up the break-even rate on FRED, how does that relate to me entering a TIPS ETF? How do I measure whether that fund is good value, compared to my expected inflation the next ten years? What numbers on the ETF-page should I look at and compare with my expected inflation?
Hi Robert, you need to know the rough average lifetime of TIPS in the fund so the effective maturity will give you that number (in years). Then you'd look up breakeven inflation for roughly that period of time on FRED (google "fred tips breakeven" to find the 5y and 10y breakeven rates). Then you have to guess whether, over the lifetime of the bonds in your fund, inflation will average more than the breakeven. If you think it will average more then TIPS make sense, if not then nominal government bonds would be better. Thanks, Ramin.
Simple question: how UK based investor can purchase Inflation Linked Gilt Bond? Not a bond fund but actual bond. Why bond and not fund? Because inflation linked bond fund seem to have nothing to do with guaranteed fixed income despite it's description - it is volotile almost like equities or even worst if its duration is long enough.
Great question, in sm other countries is very straight fwd, but in UK, as always, the legislation treats the investor as a naive person that cannot access any sort of investments other than F.Funds.. How to we buy UK inflation linked bonds??
Hi Ramin, great content once again. Inflation is currently high and looks like it may be high for some time. Could one buy inflation linked bonds from government directly (UK), hold it for as long as the inflation is high and then sell before maturity date? If so, what are the penalties for doing that? Also, do you know how frequently the inflation figures are updated in UK for those inflation linked bonds? Can any individual buy UK bonds directly from the government?
@@Pensioncraft I'm contemplating the addition of bonds to my portfolio for obvious reasons. Your video helped me clear the way to add TIPS as well. An added factor was an article this week in The Economist: "Regime Change" where it postulates that tight monetary policy is colliding with loose fiscal one (example Truss and her tax cuts) in much of the world and that would diminish the possibility of lower inflation anytime soon. Hence, TIPS may a role to play.
@@philipspain2646 fears of interest rate rises. When the market realises that we're staying in a low interest high inflation environment, index linkers ought to take off
The elephant in the room is that the CPI significantly underestimates the actual rate of inflation which is probably at least 15% It is more smoke and mirrors from the government which makes investing in these bonds pointless.
Have to say I found this video a bit disappointing. Maybe I missed an important part of the explanation, but it seemed to focus around the performance of an IL bond from issue to maturity, whereas I'd be more interested in how to value such a bond mid-term relative to the normal flavour. But, as per other comments, I'd be buying a fund rather than an individual bond and then there's the question of which fund and what duration it might focus on. Actually, the only TIPS-specific option I can quickly see in my - admittedly limited - InvestEngine choice is UBTP, which seems to cover 1-10 years.
Good video. For inflation linked bonds how can the price be calculated when they are freely traded on exchanges, so subject to supply and demand? What would be the principal value at redemption of the inflation linked bond?
From my understanding, TIPS are more for forward rates of inflation, while I-Bonds are more for current (more accurately recent) inflation. CPI is very transparent and is the best we have to gauge actual inflation.
Where central banks pursue an inflation target policy of 2%, to buy inflation linked bonds with an expected breakeven of over 3% suggests central banks will fail in meeting their targets over the next 10 years. It's not a bet I'm taking.
@@Tk0mma Suspend all belief. There is no place for them in navigating the markets. It could be a careful tightrope walk between both approaches. We've witnessed many things this past few years that seemed inconceivable prior....
Brilliant! thanks Ramin! I wonder what inflation breakeven is now in the European Union.. Gotta do my research and see whether the ECB does provide that. Have a nice weekend
Yes, I think UK inflation linked government bonds, or index linked gilts as they are sometimes called used to be linked to the RPI rate of inflation. But I guess our government being clever decided to link them to the CPI rate which is lower. So now they don't have to pay out so much. But the government and businesses still use the RPI rate when it suits them, when it works in their favour. ie when they are charging you for something etc
Please let us know of a better, more transparent gauge of inflation. Of course local rates will vary; inflation hits different people, regions, etc. very differently.
Thank you for all the videos and podcast with always great content. What do you think of the Inflation expectation ETFs, that are short in nominal and long in index linked bonds in an environment with raising interest rates? Should be a better choice than index linked bonds?
Hi Thomas I haven't come across those funds - I'm guessing there aren't many... They probably aren't available in Europe as there are limits on leverage for UCITS funds and a long/short portfolio like the one you're describing might hit some leverage limit. But if I understand correctly it's duration-neutral for nominal rates and gives exposure to inflation directly, which is definitely interesting. What's the ticker? Thanks, Ramin.
@@Pensioncraft Hi Ramin. Thank you for your reply. Lyxor have a few. The tickers are UINF and EUIN. I don’t think they are leveraged as such. Best regards Thomas
Great video as always. Very nice explanations. What I think would be also good to have mentioned is that the CPI is calculated and issued by the government and what we saw in the past few weeks is, that the government calculates the CPI in their own favour, meaning that it will be most likely lower than the real CPI which hurts our savings.
Thanks for your videos! What do you consider the best hedge (or the combination of) for the times like this, with both inflation and interest rates going up? I mean, it can theoretically take years with both of them growing, if rates are not high enough to help bring down inflation, and deflationary technological thingy not working that well given global production/transportation issues, politics, conflicts etc. Bonds can perform not that well given both rates and inflation growing. Gold is already at somewhat high price level. Cryptocurrencies ETFs? Something else? Thanks.
According to the video Tony is far superior to Norm, as the cumulative coupon almost catches up (you said by 2022 but the graph looks more like it's 2028) AND the principal goes up. And this is despite the fact that inflation hasn't been particularly high since 1998. In fact you show that Tony sells now for $127 while returning at least $175 (likely more) in 2028 + the coupons. Looks too good to be true. Are you sure there isn't an error somewhere?
While informative, the problem with these videos is that you need to protect your portfolio AHEAD of the event happening. Waiting for inflation to spike and then thinking about how to protect it has already taken away most of your best options. Commodities have already spiked, TIPS have priced in a high degree of inflation already. It's the same reason why you buy insurance when times are good, you don't wait for your house to catch fire before ringing around. Markets don't pay your to react to what is already happening, they pay you to look into the future and put your bets on ahead of time.
Thank you Ramin for your great video! Amazing content! Just had one question. In the credit suisse 2021 Yearbook, chapter the low returns world. In the graph inflation linked bonds have negative returns the past few years. How is this even possible?
*Fighting 7.9% inflation (more like 15%) with a 1% Fed funds interest rate is like stopping a forest fire with a bucket of water. Folks prepare accordingly. Make investment in other not to depend on the government for funds.*
Ohh no!! I love your videos Ramin and consider your knowledge and viewpoints fascinating, but I’m really sad to see the introduction of video sponsors. I realise you have to make money, but I’m getting so tired of all my favourite UA-camrs getting on this bandwagon. I really don’t want to let your videos go but if the ad spots become frequent it’ll start to get really annoying. Such a shame.
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I like the Mother-In-Law indicator. When My MIL tells me to buy something, I sell and when she tells me to sell, I buy. If she tells me there is going to be a recession my confirmation bias turns positive.
8-)
Why has my Vanguard VTIP ETF dropped over 3% while inflation is peaking?
Bought US TIPS last November and not hedged they have done OK but took the thinking US would raise rates strongly giving be the currency boost back to pounds so more complex thinking when buying these types of bonds
Great explanation of this Asset Class. Fantastic how you got to this one, investment deciding, question.
Glad you enjoyed it!
Watching this in September 2022. Kwateng has tanked my UK inflation linked gilt by negative 30%. Lol. Bonds were meant to be safe.
That was really good thanks
Thank you too!
Sticking with my plan to invest a lump sum (when it comes through) with IGLA as my bond fund. Keeps falling so probably a good time to buy this with a long-term outlook.
80/20 split.
Equities in a Global Index Fund.
Turn the news off, rebalance every year or so.
Sleep easy.
sounds sensible
Hi Ramin,
Another great video.
As a soon to be pensioner my priority is to protect my savings against the ravages of inflation. I'm less concerned about income or capital gains.
I was surprised to see the poor performance of some of the TIPS etfs. They've practically halved this year alone!
In the currently inflationary environment I can't see any logic in holding non inflation linked bonds or gilts.
I know you can't give financial advice but what are your thoughts on which option is best for someone who just wants to protection their spending power?
I already hold 20 percent of my portfolio in equities and 80 percent cash, the latter which of course I'd rather not hold but am nervous about the stock market right now..
I'd say the inflation rate for the next ten years will be well above 3 percent!
The problem with TIPs is that they don't factor in the M2 money supply; and the chefs at the BLS over cook the headline inflation rates
Could I just ask for a clarification?
When you look up the break-even rate on FRED, how does that relate to me entering a TIPS ETF? How do I measure whether that fund is good value, compared to my expected inflation the next ten years? What numbers on the ETF-page should I look at and compare with my expected inflation?
Hi Robert, you need to know the rough average lifetime of TIPS in the fund so the effective maturity will give you that number (in years). Then you'd look up breakeven inflation for roughly that period of time on FRED (google "fred tips breakeven" to find the 5y and 10y breakeven rates). Then you have to guess whether, over the lifetime of the bonds in your fund, inflation will average more than the breakeven. If you think it will average more then TIPS make sense, if not then nominal government bonds would be better. Thanks, Ramin.
Simple question: how UK based investor can purchase Inflation Linked Gilt Bond? Not a bond fund but actual bond. Why bond and not fund? Because inflation linked bond fund seem to have nothing to do with guaranteed fixed income despite it's description - it is volotile almost like equities or even worst if its duration is long enough.
I would also like to know this, thanks again for a great video.
My thoughts exactly
Great question. I am trying to find the answer to it for some time. It would be great to have Ramin’s response to that.
Great question, in sm other countries is very straight fwd, but in UK, as always, the legislation treats the investor as a naive person that cannot access any sort of investments other than F.Funds..
How to we buy UK inflation linked bonds??
Eh, I didn't buy youtube premium to hear you going on about Nord VPN!
Hi Ramin, great content once again.
Inflation is currently high and looks like it may be high for some time. Could one buy inflation linked bonds from government directly (UK), hold it for as long as the inflation is high and then sell before maturity date? If so, what are the penalties for doing that? Also, do you know how frequently the inflation figures are updated in UK for those inflation linked bonds? Can any individual buy UK bonds directly from the government?
Ministry of finance must have a virtual equity bank for adjustments.
Excellent video. Thanks!
Glad you liked it @Marcos Agosti
@@Pensioncraft I'm contemplating the addition of bonds to my portfolio for obvious reasons. Your video helped me clear the way to add TIPS as well. An added factor was an article this week in The Economist: "Regime Change" where it postulates that tight monetary policy is colliding with loose fiscal one (example Truss and her tax cuts) in much of the world and that would diminish the possibility of lower inflation anytime soon. Hence, TIPS may a role to play.
Cool. thank you :)
Welcome! @I Am Online
Congratulations on the new sponsor!
Hi @Ganok thank you! Ramin.
i have 50% bond funds and 50% in iBonds. No need to speculate about insurance and I make some returns no matter what.
Interesting, I don't know much about inflation-linked bonds👍🏻
You do now!
@@patbateman2088 indeed and you too✌🏻👋
Glad it was helpful!
I am confused, if inflation is rising since January, why is the value of the linked bond falling?
@@philipspain2646 fears of interest rate rises. When the market realises that we're staying in a low interest high inflation environment, index linkers ought to take off
The elephant in the room is that the CPI significantly underestimates the actual rate of inflation which is probably at least 15% It is more smoke and mirrors from the government which makes investing in these bonds pointless.
Have to say I found this video a bit disappointing. Maybe I missed an important part of the explanation, but it seemed to focus around the performance of an IL bond from issue to maturity, whereas I'd be more interested in how to value such a bond mid-term relative to the normal flavour. But, as per other comments, I'd be buying a fund rather than an individual bond and then there's the question of which fund and what duration it might focus on. Actually, the only TIPS-specific option I can quickly see in my - admittedly limited - InvestEngine choice is UBTP, which seems to cover 1-10 years.
Ask for a refund.
I invested in Royal London index linked fund late last year and the performance has been pretty underwhelming given rocketing inflation.
Why not just buy both as a hedge?
Good video. For inflation linked bonds how can the price be calculated when they are freely traded on exchanges, so subject to supply and demand? What would be the principal value at redemption of the inflation linked bond?
Not linked to the real rate of inflation but the inflation they report.
From my understanding, TIPS are more for forward rates of inflation, while I-Bonds are more for current (more accurately recent) inflation. CPI is very transparent and is the best we have to gauge actual inflation.
So what?
Where central banks pursue an inflation target policy of 2%, to buy inflation linked bonds with an expected breakeven of over 3% suggests central banks will fail in meeting their targets over the next 10 years.
It's not a bet I'm taking.
Genuine question - how do you think they'd cook the figures?
@@Tk0mma Is that rhetorical?
@@wolfiestreet6899 Nah, I just don't think they'd raise interest rates enough so I only see them adjusting the definition of CPI
As they always have.. or subdue demand in some unnatural way
@@Tk0mma Suspend all belief. There is no place for them in navigating the markets. It could be a careful tightrope walk between both approaches.
We've witnessed many things this past few years that seemed inconceivable prior....
Brilliant! thanks Ramin! I wonder what inflation breakeven is now in the European Union.. Gotta do my research and see whether the ECB does provide that. Have a nice weekend
Good question!
CPI ? Now that's a joke on its own . Inflation is way higher than that.
Yes, I think UK inflation linked government bonds, or index linked gilts as they are sometimes called used to be linked to the RPI rate of inflation. But I guess our government being clever decided to link them to the CPI rate which is lower. So now they don't have to pay out so much. But the government and businesses still use the RPI rate when it suits them, when it works in their favour. ie when they are charging you for something etc
Please let us know of a better, more transparent gauge of inflation. Of course local rates will vary; inflation hits different people, regions, etc. very differently.
Thank you for all the videos and podcast with always great content. What do you think of the Inflation expectation ETFs, that are short in nominal and long in index linked bonds in an environment with raising interest rates? Should be a better choice than index linked bonds?
Hi Thomas I haven't come across those funds - I'm guessing there aren't many... They probably aren't available in Europe as there are limits on leverage for UCITS funds and a long/short portfolio like the one you're describing might hit some leverage limit. But if I understand correctly it's duration-neutral for nominal rates and gives exposure to inflation directly, which is definitely interesting. What's the ticker? Thanks, Ramin.
@@Pensioncraft Hi Ramin. Thank you for your reply. Lyxor have a few. The tickers are UINF and EUIN. I don’t think they are leveraged as such. Best regards Thomas
Great video as always. Very nice explanations. What I think would be also good to have mentioned is that the CPI is calculated and issued by the government and what we saw in the past few weeks is, that the government calculates the CPI in their own favour, meaning that it will be most likely lower than the real CPI which hurts our savings.
Great point!
This was like going back to school to enjoy an excelent maestro. Thanks colega!! ... and cheers from the inflation linked city of Buenos Aires ;-)
Glad you enjoyed it!
I got my I-bonds!
Inflation can be reduced by subsidy.
Many Thanks!!!
You're welcome!
Thanks for your videos!
What do you consider the best hedge (or the combination of) for the times like this, with both inflation and interest rates going up? I mean, it can theoretically take years with both of them growing, if rates are not high enough to help bring down inflation, and deflationary technological thingy not working that well given global production/transportation issues, politics, conflicts etc.
Bonds can perform not that well given both rates and inflation growing.
Gold is already at somewhat high price level.
Cryptocurrencies ETFs? Something else?
Thanks.
$SCHP
According to the video Tony is far superior to Norm, as the cumulative coupon almost catches up (you said by 2022 but the graph looks more like it's 2028) AND the principal goes up. And this is despite the fact that inflation hasn't been particularly high since 1998. In fact you show that Tony sells now for $127 while returning at least $175 (likely more) in 2028 + the coupons. Looks too good to be true. Are you sure there isn't an error somewhere?
While informative, the problem with these videos is that you need to protect your portfolio AHEAD of the event happening. Waiting for inflation to spike and then thinking about how to protect it has already taken away most of your best options. Commodities have already spiked, TIPS have priced in a high degree of inflation already. It's the same reason why you buy insurance when times are good, you don't wait for your house to catch fire before ringing around. Markets don't pay your to react to what is already happening, they pay you to look into the future and put your bets on ahead of time.
Brilliant explanation.
Glad it helped!
Thank you Ramin for your great video! Amazing content! Just had one question. In the credit suisse 2021 Yearbook, chapter the low returns world. In the graph inflation linked bonds have negative returns the past few years. How is this even possible?
bondsZzzzZzzz
*Fighting 7.9% inflation (more like 15%) with a 1% Fed funds interest rate is like stopping a forest fire with a bucket of water. Folks prepare accordingly. Make investment in other not to depend on the government for funds.*
Short sighted.
It's 1% now....
Ohh no!! I love your videos Ramin and consider your knowledge and viewpoints fascinating, but I’m really sad to see the introduction of video sponsors. I realise you have to make money, but I’m getting so tired of all my favourite UA-camrs getting on this bandwagon. I really don’t want to let your videos go but if the ad spots become frequent it’ll start to get really annoying. Such a shame.