Buy diversified stocks is good advice, but it’s not low risk.
- Shifting funds from bonds to stocks, especially preferred shares, is one strategy.
- Real estate usually performs well in inflationary climates; REITs are the most feasible way to invest.
- Adding global stocks or bonds to your portfolio also hedges your portfolio against domestic inflationary cycles.
- Another option is more exotic debt instruments like TIPS (inflation-adjusted Treasury bonds).
- Buying senior secured bank loans is another way to earn higher yields while protecting yourself from a price drop if rates start to rise.
- Done that.
- I guess I should look into if I can buy REITs in my IRA. Internet seems to think so.
- Done that. I’ve been heavy on global index funds for a long time. I figure my home equity has plenty of exposure to US markets already.
- Don’t think I can do that in my IRA?
- Same as #4.
Low risk meaning less volatile than stonks if I already think the market is overpriced. Doesn’t have to be zero risk. I’m ok with 95% risk of expected return and 5% risk of disaster. Also doesn’t have to perfectly hedge inflation, but at least return something.
I’ve been convinced the market is overpriced for a while. But other than straight cash I’m not sure where else to put any money. During covid when I was out of the market and in cash, I put it in FXE (basically like owning Euros), because I thought Europe would do better than Trump. I made a little money. But I don’t have that thesis anymore that Europe is going to do better.
When/if we get back to DOW 36k, I’ll probably think the market is overpriced again. It probably is still way overpriced now, but I’m not going to pull out now and get whipsawed when it jumps again while I’m sitting in cash. I’m willing to take on the fairly low, but not zero, risk we don’t get back to 2022 levels in the next 7-10 years.
But if things get frothy again and I want to take some money off the table, I’m looking for a lower risk but at least some yield-producing alternative to straight cash. Sounds like that doesn’t exist. 1% money market maybe?
Yeah that’s kind of the plan. But I’d rather not have to work right away while I travel and gather material for my next book.
What I don’t want to do is put off my plans for 1+ years (which could turn into five before you know it). I want to enjoy driving around the world while I still have my health and most of my brain. I really don’t think I’m going to look back on my deathbed and wish I’d worked a boring job living in my 1-bedroom condo with almost no social life for another few years.
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The best inflation hedge is a house with a 30 year fixed rate mortgage AINEC.
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value stocks (only with low or no debt) that sell things people need or will buy anyway might do fine in inflation but they’re still gonna go down at first if headlines are all doom and gloom. (not there yet despite the market going down every day we’re not seeing anything too negative yet, ie no mass layoff headlines)
this inflation is different than the 70’s, where it was labor based so the best inflation was having a job (and they cycled because labor had power to get raises but that just led to more inflation which led to wanting more of a raise and so on), this one is more company profit based
ie, employment still gonna be the best hedge but not as good as the 70’s
a bit of a comparison even though it’s only loose but I got nothing better the 1969 bear market was a year and a half then there was a bull market, then the next bear market went lower than the previous one did then the decade ended up about even. Stonks yeesh. (we’re a lot faster with everything these days in all directions than back then so who knows)
I have that. But I don’t want to live in it. And rent would just basically cover my mortgage payment + HOA, not accounting for improvements or repairs. At least for 25 more years.
Ha quite a few PE EM firms have gone busto
Folks are bringing up p/e ratios of certain companies as an argument against prices being too high … but those days don’t matter now. If companies are no longer beating or expected to beat those earning requirements of the past…those current p/e s will change and show just how high the bar was set.
P/Es are the “do your own research” before crypto.
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The point of private equity wasn’t for the investors to get rich. It was for the PE managers and sales people to get rich.
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Private equity is a 747 controlled by 9/11 hijackers who brought golden parachutes for themselves.
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I think this is one of those things that makes retirement planning so vexing. The investment industry’s traditional approaches to understanding risk (volatility) don’t help real humans make good investment decisions for retirement. Retirement planning risks are more “real” than financial statement volatility. The risks are personal, but they usually take the form of:
Risk Level 1 - not able to spend as much in retirement and do the things that you want to do
Risk Level 2 - run out of money before you die
Retirement Risk Level 1 really, really sucks but it’s probably an acceptable risk. A good retirement plan for most people probably involves something like a 50/50 chance of being able to do everything you want in retirement, i.e. vacations and some “luxury” conveniences.
Retirement Risk Level 2 is much more serious and is the actual retirement catastrophe most people desperately want to avoid.
Risk management for retirement planning should really be based on examining those risks, rather than more abstract short cuts like account volatility based on means and variances and correlations between asset classes. But, that is very hard work. You really need to get into the weeds and model out your account’s balance to retirement, and how you will draw it down in retirement, and how each piece will be taxed, and what happens to that plan if you experience stresses along the way - a stock market crash, a period of temporary or sustained inflation, or if you live a very long time.
I do really encourage people to get into that detailed analysis. I have built for our household a projection of our retirement savings and taxable investments, and what we have coming from some legacy DB plans we both earned a benefit in, and our government pensions. And then I model out how each of those pieces draws down in retirement and how they’re taxed (pensions are taxed as income, amounts taken out of our retirement accounts are taxed as income, dividends are taxed favorably, some of our money is in the Canadian versions of Roth IRAs so they’re not taxed at all on withdrawal, etc etc etc). What you find pretty quickly is that you can’t get rid of risk in retirement. It’s a bit of a fool’s errand to chase an asset allocation that makes risks go away - indeed, investing in “low risk” investments that protect against account volatility risk usually increase the probably of Level 1 and Level 2 retirement risk described above because 99% of households need the higher expected return on volatile assets to achieve the spending goals in retirement and keep their accounts sustained into your 90s. When you try to figure out how to eliminate all risks in retirement you end up like a Boglehead with $30 million that thinks it’s not enough. It turns out eliminating every conceivable risk is outrageously expensive.
Anyway I encourage people to take another perspective on retirement risk and instead of thinking of it as an asset allocation exercise think of it as a planning exercise. A retirement plan is, well, a plan. You plan to convert your retirement assets into income and when things change, you change the plan. A good spreadsheet can help you understand what the risks really are, and how you would adapt to them in real time.
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What is an acceptable PE is also completely different in a world with 0% interest rates and a world with say 4 or 5% interest rates.
A company like Clorox (I think a good example of a company with a high PE and stable long term business but not any sort of impressive growth story) might be worth a PE in the mid 30s if risk free bonds are paying 0 or negative interest rates, but why would investors accept that if you can get bonds in the 5% range?
The whole thing with 0% interest rates and the Fed trying to bend the yield curve to riskier assets by depressing the price of the safest bonds created a situation where there was no reasonable alternative to stocks for most investors.
Would really like to see a wave of follow up articles on the “I retired at 30 with $1 million, 100% equities” crew.
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Some real horror stories I imagine. “I knew going into this that the risks were very real but fortunately I am a self starter with well developed resiliency skills and a “can do” attitude. I have had to move back into my dad’s vacation condo in Sarasota and take a temporary job at his company as VP of innovation, but even with this temporary set back I expect to be back on my feet in no time”.
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The conclusion I have reached is net of fees private equity performs comparably to public equity. The fees are extraordinarily high, so gross of fees there’s legitimate outperformance.
Because PE returns are not marked to market, it creates a false sense of lack of volatility, which interestingly people seem to pay up for. This seems to cancel out any theoretical illiquidity premium that should exist.
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I don’t know that gross returns outperform public equity when you factor in leverage.
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I think @ParlaySlow is correct that PE has historically had “outperformance” if you measure it properly. I also think that the last decade of PE and the future outlook is much less attractive because more institutional money is flowing into PE. There are only so many great private equity opportunities that need capital, as more and more capital flows into the space by necessity it will be spread around to projects and ventures that would not have “made the cut” in the early days of PE. That’s not good for future returns.
