Hedges start at 10:13 if you want to skip the preliminary discussion. Up to you. Does the recent rampant inflation have you seeking specific assets for protection in your portfolio?
Could you explain the pros and cons of buying one of the TIPS ETFs versus buying TIPS from the US Treasury directly? Their value went down even though inflation is high because of the rise in interest rates. This would have been seen in the index fund/ETF but as long as you hold the TIPS for their term, they can't lose value. Does this make buying from the US Treasury better or will the index fund always see that increase if it is held for the term as well? Thanks
Sounds like you've got it - the fund is rolling those bonds to maintain a target duration. With some hand waving on the math, a ladder of individual bonds and a fund of the same effective average duration are the same thing. Put another way, a bond fund's current yield is the best predictor of its return over the next 2n-1 years where n is duration. Pro of a fund would be convenience. Some brokers allow you to buy individual bonds. But there are also bond ladder ETFs now too, though I don't think they exist for TIPS.
The asset with the greatest inflation risk exposure would be long term fixed income. Therefore, the best inflation hedge is to be short fixed income (aka owing debt) Conclusion: a 30 year fixed rate mortgage protects the investor from rent inflation.
@@roosterc1546 no, because a dollar you own can be easily converted into something that isn’t a dollar. Like stocks, or other currencies. Cash is liquid. Fixed income on the other hand is a contract to receive future dollars you do not yet possess. You must first convert it to cash before you can diversify. So you must liquidate the fixed income contract. Inflation expectations are baked into fixed income asset prices, so if inflation is high, you may have to liquidate the fixed income contract at a loss. Tl;dr inflation affects asset prices, asset prices affects liquidity.
Well not today. But I'm watching XLP. but she isn't looking that great. RISR OR PFIX are something to maybe throw a few thousand in and get a little income until this stables down. Don't hold me to it though the market is sketchy rn.
Thanks for the kind words! KMLM looks like a new, low-AUM, expensive, active managed futures fund to me. I think what you've seen is ONE guy shilling it on Reddit recently across multiple subs, because I've seen it too. Likely better off with a commodities index fund like BCI or PDBC.
@@OptimizedPortfolio yup, definitely has been the same guy posting it. I’ll probably stay away from commodities for the reasons you generally list and I feel it doesn’t make sense to have an allocation to it while in the accumulation phase. That guy posted a study I thought was interesting that showed how commodities outperform during times of inflation (while of course underperforming most if not all other asset classes during normal times) so it feels a bit market timey-ish to me also. Appreciate the response!
@@naidnarnya9448 Indeed. You hit the nail on the head. Here are some numbers to illustrate what you just said. Commodities are simultaneously up over 150% for the past year and still negative for the past 10 years, which is... pretty wild. Great for someone who can successfully time the market, but I don't try to do that, as it's typically more harmful than helpful.
Reading about people grabbing multi-figures monthly as incomes in investments even in this crazy days in the market, any pointers on how to make substantial progress in earning? I would appreciate.
Hedges start at 10:13 if you want to skip the preliminary discussion. Up to you. Does the recent rampant inflation have you seeking specific assets for protection in your portfolio?
You mentioned an emergency fund replacement portfolio. I would love to get the M1 Pie on that, a video would also be great
@@gmk22799898 Sure thing. Here's that: www.optimizedportfolio.com/invest-emergency-fund/
This is an amazing summary of inflation! Thank you!
Thanks, Jason!
This is an outstanding overview and explanation, deserving of many more views. Keep up the good work!
Thank you!
Could you explain the pros and cons of buying one of the TIPS ETFs versus buying TIPS from the US Treasury directly? Their value went down even though inflation is high because of the rise in interest rates. This would have been seen in the index fund/ETF but as long as you hold the TIPS for their term, they can't lose value. Does this make buying from the US Treasury better or will the index fund always see that increase if it is held for the term as well? Thanks
Sounds like you've got it - the fund is rolling those bonds to maintain a target duration. With some hand waving on the math, a ladder of individual bonds and a fund of the same effective average duration are the same thing. Put another way, a bond fund's current yield is the best predictor of its return over the next 2n-1 years where n is duration. Pro of a fund would be convenience. Some brokers allow you to buy individual bonds. But there are also bond ladder ETFs now too, though I don't think they exist for TIPS.
The asset with the greatest inflation risk exposure would be long term fixed income.
Therefore, the best inflation hedge is to be short fixed income (aka owing debt)
Conclusion: a 30 year fixed rate mortgage protects the investor from rent inflation.
Wouldn't the asset with the greatest inflation risk be the dollar?
@@roosterc1546 no, because a dollar you own can be easily converted into something that isn’t a dollar. Like stocks, or other currencies. Cash is liquid.
Fixed income on the other hand is a contract to receive future dollars you do not yet possess. You must first convert it to cash before you can diversify. So you must liquidate the fixed income contract. Inflation expectations are baked into fixed income asset prices, so if inflation is high, you may have to liquidate the fixed income contract at a loss.
Tl;dr inflation affects asset prices, asset prices affects liquidity.
Good point, Chris!
I eel like a consumer staples etf would be poised to inherently keep pace with inflation.
Well not today. But I'm watching XLP. but she isn't looking that great. RISR OR PFIX are something to maybe throw a few thousand in and get a little income until this stables down. Don't hold me to it though the market is sketchy rn.
You mentioned reckless spending that sounds like theUSA
This is fantastic content
Thanks!
Awesome stuff as always. Thoughts about one I’ve been seeing pop up on Reddit lately as an inflation hedge - KMLM?
Thanks for the kind words! KMLM looks like a new, low-AUM, expensive, active managed futures fund to me. I think what you've seen is ONE guy shilling it on Reddit recently across multiple subs, because I've seen it too. Likely better off with a commodities index fund like BCI or PDBC.
@@OptimizedPortfolio yup, definitely has been the same guy posting it. I’ll probably stay away from commodities for the reasons you generally list and I feel it doesn’t make sense to have an allocation to it while in the accumulation phase.
That guy posted a study I thought was interesting that showed how commodities outperform during times of inflation (while of course underperforming most if not all other asset classes during normal times) so it feels a bit market timey-ish to me also. Appreciate the response!
@@naidnarnya9448 Indeed. You hit the nail on the head. Here are some numbers to illustrate what you just said. Commodities are simultaneously up over 150% for the past year and still negative for the past 10 years, which is... pretty wild. Great for someone who can successfully time the market, but I don't try to do that, as it's typically more harmful than helpful.
@@OptimizedPortfolio wow, that is absolutely insane. Goes to show what should be expected from non-productive assets I suppose
Reading about people grabbing multi-figures monthly as incomes in investments even in this crazy days in the market, any pointers on how to make substantial progress in earning? I would appreciate.
Have lots of money -- buy index fund when the market is doing well.
Boring, looks like he’s finally bringing up hedges 10 minutes in…
Totally
It's why he put timestamps duh.