The Ultimate Inflation Hedge (EP.150)

May 20, 2021

Exploring the different investment approaches and commodities to hedge against inflation. Discussion on the performance of stocks, bonds, gold, international stocks, and value stocks. Highlighting the challenges and opportunities in managing inflation and effective investment strategies. Analyzing historical performance of value stocks and critiquing misleading investment advice on dividend stocks.

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ANECDOTE

Well Simple Portfolio Changes And Effects

Ben reviews Wealthsimple's portfolio changes and how long bonds and gold affected recent returns.
He shows their 80/20 growth portfolio lagged simpler cap-weighted alternatives year-to-date due to those choices.

ADVICE

Plan For Expected Inflation

Do expect some inflation and build it into financial plans because markets and contracts already price expected inflation.
Prepare for unexpected inflation by diversifying sources of expected return rather than chasing a single hedge.

INSIGHT

Nominal Returns Can Mask Real Losses

High inflation can erase real returns even when nominal returns look reasonable.
The 1966–1982 U.S. period delivered near 0% real stock returns despite positive nominal returns.

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Is it possible to hedge your investments against different levels of inflation? This is the question we ask in today's episode, as we run through a variety of different investment approaches and commodities. While the answer may not come as a huge surprise, it is definitely worth the walk-through and getting to grips with what the literature can tell us in each scenario. After rounding up some news and a few reviews relevant to our usual subject matter, we dive straight into this topic, tackling the performance of stocks and bonds, gold, international stocks, value stocks, and more! We also share some general thoughts and questions to ask during periods where inflation is high, before positing our view that there is no single successful hedge against inflation, but rather our usual position of an adjusted and diversified portfolio will serve you as well in this regard as in others. We finish off this episode with a few of our usual quick cards, and this week's disturbing bad advice! So tune in to hear all about what you should know about expected and unexpected inflation and a whole lot more!

Key Points From This Episode:

The exciting recent decisions around succession that were made at PWL! [0:00:22.4]
Ben's review of Greg McKeown's new book Effortless and Netflix's Money, Explained. [0:04:51.7]
A quick round up of some big money news from around the country. [0:08:25.2]
Reflecting on the recent performance of Wealthsimple portfolios. [0:13:26.6]
'The ultimate inflation hedge'; looking at returns under different conditions through the years. [0:19:50.1]
Looking at the performance of stocks and bonds during high inflationary periods. [0:25:04.6]
What to do and what to ask in situations with higher-than-expected inflation. [0:32:21.0]
Weighing the value of gold as an inflation hedge; 'The Golden Dilemma' and 'The Golden Constant'. [0:39:50.3]
The performance of international stocks during a period of high inflation. [0:44:05.8]
What the research shows about value stocks and and their relation to inflationary periods. [0:45:55.2]
The answer to the question: no perfect hedges against inflation! [0:52:04.7]
Today's cards; saving versus spending, and tools versus treasures. [0:55:20.3]
Bad advice of the week courtesy of the Investment Executive! [0:56:56.0]