The 7 Best Inflation Hedge Assets and ETFs

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Inflation fears are always lingering. Here we’ll look at what inflation is, why it occurs, how it’s measured, and the best assets to hedge against it with their corresponding ETFs.
// TIMESTAMPS:
00:00 - Intro
00:14 - What Is Inflation?
01:43 - How Is Inflation Measured?
02:26 - Why Does Inflation Occur?
03:24 - Annual Inflation Rate Formulas - How To Calculate
03:48 - Why Is Inflation Good?
04:16 - Why Is Inflation Bad?
04:54 - How To Control Inflation with Monetary Policy
06:12 - Inflation Examples
07:27 - Inflation Hedges - Do You Even Need Them?
10:16 - How To Hedge Against Inflation - Assets and ETFs
11:47 - Real Estate
12:16 - Commodities
12:55 - Gold
13:42 - Stocks
14:31 - Debt
14:55 - Short-Term Bonds
16:18 - TIPS and I-Bonds
18:32 - Conclusion
19:39 - Outro
// SUMMARY:
Inflation refers to an aggregate increase in prices, commonly measured by the Consumer Price Index (CPI), which decreases purchasing power. This means that for any given unit of currency, in this case the U.S. Dollar, you’re able to buy fewer goods and services as time goes on.
A country’s monetary policy helps maintain “healthy” levels of inflation. In the U.S., that responsibility falls largely to the Federal Reserve Bank or simply “the Fed.” The Fed attempts to keep inflation within reasonable limits in order to maximize employment, stabilize prices, and encourage spending. The main levers they can pull to achieve this are influencing interest rates and the money supply.
Inflation is always happening, hopefully at a steady rate, kept on the rails by a central bank. This expected inflation is already incorporated into asset prices. What we’re concerned with possibly protecting against is unexpected above-average inflation.
Even then, an investor with a long time horizon and a high tolerance for risk - and subsequently, a high allocation to stocks - likely shouldn’t be worried about short-term inflation. However, it’s perfectly suitable and even desirable for retirees, risk-averse investors, and those with a short time horizon to have some allocation to inflation-protected assets like TIPS.
Commodities and gold may not be great assets to save your portfolio from runaway inflation in the future, and are almost certainly suboptimal investments over the long term. Investors will likely come out ahead using assets like REITs, short-term nominal bonds, and TIPS. I’m not a fan of sector bets, but it may also be prudent to slightly overweight “defensive” sectors like Consumer Staples and Utilities if one fears inflation.
Assets and ETFs mentioned:
Real Estate - VNQ
Commodities - PDBC
Gold - SGOL
Stocks - VT
Debt
Short-Term Bonds - VGSH, SGOV
TIPS - VTIP, SCHP, LTPZ
I-Bonds
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#investing #inflation #stockmarket #stocks #etfs #inflationhedges
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Disclaimer: This is not financial advice, investing advice, or tax advice. The information presented is for informational, educational, and entertainment purposes only. Investment products discussed are for illustrative purposes only. It is not a recommendation to buy, sell, or otherwise transact in any of the products mentioned. I always attempt to ensure the accuracy of information presented but that accuracy cannot be guaranteed. Do your own due diligence. All investing involves risk, including the risk of losing the money you invest. Past performance does not guarantee future results. Opinions are my own and do not represent those of other parties mentioned. Read my lengthier disclaimer here: www.optimizedportfolio.com/te...
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Опубликовано:

24 июл 2024

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Комментарии : 30

@OptimizedPortfolio 2 года назад

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?

@gmk22799898 2 года назад

You mentioned an emergency fund replacement portfolio. I would love to get the M1 Pie on that, a video would also be great

@OptimizedPortfolio 2 года назад

@@gmk22799898 Sure thing. Here's that: www.optimizedportfolio.com/invest-emergency-fund/

@jonathanparker2939 4 месяца назад

This is an outstanding overview and explanation, deserving of many more views. Keep up the good work!

@OptimizedPortfolio 4 месяца назад

Thank you!

@jasonhobbs2405 Год назад

This is an amazing summary of inflation! Thank you!

@OptimizedPortfolio Год назад

Thanks, Jason!

@chrischristian7511 2 года назад

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 2 года назад

Wouldn't the asset with the greatest inflation risk be the dollar?

@chrischristian7511 2 года назад

@@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.

@OptimizedPortfolio Год назад

Good point, Chris!

@UpRiverRafting Год назад

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

@OptimizedPortfolio Год назад

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.

@johngutierrez2687 2 года назад

I eel like a consumer staples etf would be poised to inherently keep pace with inflation.

@globalprofits101 2 года назад

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.

@stevewilliams6354 2 года назад

You mentioned reckless spending that sounds like theUSA

@naidnarnya9448 2 года назад

Awesome stuff as always. Thoughts about one I’ve been seeing pop up on Reddit lately as an inflation hedge - KMLM?

@OptimizedPortfolio 2 года назад

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.

@naidnarnya9448 2 года назад

@@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!

@OptimizedPortfolio 2 года назад

@@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.

@naidnarnya9448 2 года назад

@@OptimizedPortfolio wow, that is absolutely insane. Goes to show what should be expected from non-productive assets I suppose

@6toolbaseball 2 года назад

This is fantastic content

@OptimizedPortfolio 2 года назад

Thanks!

@nkpapi989 2 года назад

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.