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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Quick takeaways
Succession plan ensures long-term control and ownership strategy at PWL.
Inflation-protected bonds and value stocks can offer hedge against inflation.
Diversified portfolio remains crucial despite lack of perfect inflation hedge.
Deep dives
Succession Planning and Independence
Maintaining independence and a long-term vision, the company went through a successful rework to ensure control over offerings and services. This succession plan allowed for a long-term ownership and leadership strategy, transitioning control to the next generation to uphold private ownership.
Listener Reviews and Engagement
Acknowledging positive feedback and reviews, the podcast has garnered praise for its educational content and engagement with listeners. The audience appreciates the insights on rational financial decisions and values the diverse topics covered by the podcast.
Inflation and Investment Strategies
In exploring inflation hedging, it's highlighted that assets correlating positively with inflation, providing stability, and offering real expected returns are ideal, though such a perfect hedge does not exist. Inflation-protected bonds react to changes in inflation, but uncertainties in short-term returns may limit their effectiveness as a universal hedge.
Short-Dated Real Return Bonds and Cash as Potential Hedges Against Inflation
Short-dated inflation-protected bonds are sensitive to changes affecting bond prices, making them a potential hedge against inflation. However, short-dated Canadian real return bonds currently have negative real yields, indicating a loss in purchasing power. On the other hand, short-term nominal fixed income and cash have historically responded well to inflation, with potential interest rate increases benefiting short-term debt holders.
Value Stocks and International Equities as Diversification Strategies
Value stocks show potential in periods of high inflation, with evidence suggesting a relationship between the value premium and inflation levels. International equities have been noted to hedge against inflation more effectively than domestic equities, offering diversification benefits. However, while these options provide expected returns, they may not serve as perfect inflation hedges, emphasizing the importance of a diversified portfolio.
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]
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