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Strategies to deal with inflation

Stocks and Shares ISA , Choosing funds for ISA's, risk factors for funds etc
Investment strategy discussions not dealt with elsewhere.
JohnW
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Re: Strategies to deal with inflation

#406007

Postby JohnW » April 22nd, 2021, 4:43 am

Bubblesofearth wrote:Gold should more or less match inflation. Cash and fixed interest will likely trail it (speaking from an expected return basis here not what some clever people might be able to conjure).

That's more or less how I'd view it as real yields are negative now, but interesting to look at the US charts of gold, cash and treasuries since they went off the gold standard (about 45 years of returns).
If 'cash' is folding notes, of course it loses to inflation; but if it's cash deposits it has beaten US inflation.
Treasuries having beaten inflation is easy to understand. People lend money and expect to get a return for their delayed spending of that money, AND they expected not to lose out with inflation, so returns for short and intermediate treasuries returned well above inflation. Times are different just now, of course. https://www.portfoliovisualizer.com/bac ... sisResults

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Re: Strategies to deal with inflation

#406067

Postby hiriskpaul » April 22nd, 2021, 10:34 am

justfisk wrote:
hiriskpaul wrote:If you are concerned about inflation, think about reducing the BTL mortgages. High inflation, if it comes, will bring high mortgage rates with it and you need to be able to meet those mortgage payments if you are not to become a forced seller.


High Inflation would also increase Rents.
Also if one can meet the payments, wouldn't inflation be good for debt as the Real value of the debt falls over time?

Very true and if you can survive a period of high inflation then property is likely to do very well. The problem comes with sequencing. Mortgage interest rates could rise significantly faster than the ability to increase rents. Reducing mortgage debt mitigates the risk of defaulting on that debt in the short term and being forced to sell.

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Re: Strategies to deal with inflation

#406069

Postby Alaric » April 22nd, 2021, 10:40 am

hiriskpaul wrote: Mortgage interest rates could rise significantly faster than the ability to increase rents.


That's particularly true if a government wanted to control inflation or at the least being seen to "do something". So restrictions on rental increases to partly protect non house owners from rising prices and falling ability to spend.

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Re: Strategies to deal with inflation

#417415

Postby 1nvest » June 4th, 2021, 11:45 pm

Index Linked Gilts will tend to return more in real terms if inflation runs ahead of expectations. Conventional Gilts will tend to return more in real terms if inflation runs below expectations. Gold and stocks respectively do similar. A inflation neutral choice might be to equal weight each.

Since 1982 when ILG's first became available the nominal gains from such a four way portfolio have been relatively comfortable

Image

and provided a 7% annualised accumulation gain compared to 3.4% annualised inflation.

In terms of ETF's perhaps ... INXG, IGLS, SGLN, VUKE (off top of head, not specific recommendations).

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Re: Strategies to deal with inflation

#418169

Postby LooseCannon101 » June 8th, 2021, 3:31 pm

tjh290633 wrote:You may be interested in this table, which compares various indices, and my own portfolio, all unitised to be comparable, with the RPI since 1987:

.            Income Units              Accumulation                  April       
Year to Unit Value Div/Unit Unit Value FT30 FT100 RPI RPI
21-Apr-87 1.00 0.00 1.00 1.00 1.00 1.018 1.00
05-Apr-88 0.91 2.86 0.94 0.92 0.91 1.058 1.04
05-Apr-89 1.18 2.72 1.28 1.10 1.05 1.143 1.12
05-Apr-90 1.21 4.24 1.40 1.13 1.14 1.251 1.23
05-Apr-91 1.34 5.42 1.69 1.28 1.26 1.331 1.31
05-Apr-92 1.30 7.52 1.75 1.24 1.26 1.388 1.36
05-Apr-93 1.51 6.91 2.13 1.44 1.46 1.406 1.38
05-Apr-94 1.70 6.27 2.50 1.65 1.65 1.442 1.42
05-Apr-95 1.66 7.48 2.55 1.57 1.62 1.490 1.46
05-Apr-96 1.95 7.38 3.13 1.80 1.90 1.526 1.50
05-Apr-97 2.16 8.40 3.62 1.85 2.21 1.563 1.54
05-Apr-98 3.31 10.00 5.72 2.45 3.05 1.626 1.60
05-Apr-99 3.44 8.46 6.12 2.47 3.21 1.652 1.62
05-Apr-00 3.32 11.33 6.13 2.42 3.35 1.701 1.67
05-Apr-01 3.29 12.42 6.32 2.05 2.89 1.731 1.70
05-Apr-02 3.37 13.02 6.76 1.65 2.69 1.757 1.73
05-Apr-03 2.29 12.10 4.85 0.85 1.85 1.812 1.78
05-Apr-04 2.92 13.38 6.56 1.22 2.25 1.857 1.82
05-Apr-05 3.46 13.06 8.10 1.33 2.51 1.916 1.88
05-Apr-06 4.30 17.42 10.57 1.68 3.06 1.965 1.93
05-Apr-07 4.91 19.42 12.63 1.90 3.31 2.054 2.02
05-Apr-08 4.14 24.32 11.21 1.58 2.93 2.140 2.10
05-Apr-09 2.28 21.17 6.46 0.87 2.01 2.115 2.08
05-Apr-10 3.69 11.06 10.86 1.33 2.91 2.228 2.19
05-Apr-11 4.16 16.71 12.76 1.43 3.03 2.344 2.30
05-Apr-12 4.40 17.73 14.19 1.33 2.96 2.408 2.37
05-Apr-13 5.27 21.83 17.01 1.54 3.29 2.476 2.43
05-Apr-14 5.34 23.05 18.88 1.75 3.38 2.557 2.51
05-Apr-15 5.91 24.98 21.84 1.91 3.47 2.580 2.53
05-Apr-16 5.92 22.67 21.72 1.79 3.17 2.614 2.57
05-Apr-17 6.62 26.21 25.47 2.10 3.76 2.706 2.66
05-Apr-18 6.12 33.19 24.66 1.79 3.62 2.797 2.75
05-Apr-19 6.35 31.25 27.04 1.95 3.82 2.856 2.81
05-Apr-20 4.50 31.57 20.59 1.44 2.77 2.926 2.87
26-Feb-21 5.66 22.83 27.49 1.65 3.33 2.946 2.89

You will note that the FTSE100 has been comfortably ahead of the RPI for much of that time. Sometimes it falls back, but that effect is short-lived.

TJH


I have just found the price of F&C Investment Trust (FCIT) shares in April 1987 from Yahoo Finance website. They were exactly 30p. Assuming that the dividend return has averaged 1.5% over the past 34 years and the current price is 860p, then the total return is 47.6. The average annual total return is exactly 12%. FCIT is a good approximation of a global equity index tracker.

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Re: Strategies to deal with inflation

#418180

Postby 1nvest » June 8th, 2021, 4:24 pm

LooseCannon101 wrote:
tjh290633 wrote:You may be interested in this table, which compares various indices, and my own portfolio, all unitised to be comparable, with the RPI since 1987:

.            Income Units              Accumulation                  April       
Year to Unit Value Div/Unit Unit Value FT30 FT100 RPI RPI
21-Apr-87 1.00 0.00 1.00 1.00 1.00 1.018 1.00
05-Apr-88 0.91 2.86 0.94 0.92 0.91 1.058 1.04
05-Apr-89 1.18 2.72 1.28 1.10 1.05 1.143 1.12
05-Apr-90 1.21 4.24 1.40 1.13 1.14 1.251 1.23
05-Apr-91 1.34 5.42 1.69 1.28 1.26 1.331 1.31
05-Apr-92 1.30 7.52 1.75 1.24 1.26 1.388 1.36
05-Apr-93 1.51 6.91 2.13 1.44 1.46 1.406 1.38
05-Apr-94 1.70 6.27 2.50 1.65 1.65 1.442 1.42
05-Apr-95 1.66 7.48 2.55 1.57 1.62 1.490 1.46
05-Apr-96 1.95 7.38 3.13 1.80 1.90 1.526 1.50
05-Apr-97 2.16 8.40 3.62 1.85 2.21 1.563 1.54
05-Apr-98 3.31 10.00 5.72 2.45 3.05 1.626 1.60
05-Apr-99 3.44 8.46 6.12 2.47 3.21 1.652 1.62
05-Apr-00 3.32 11.33 6.13 2.42 3.35 1.701 1.67
05-Apr-01 3.29 12.42 6.32 2.05 2.89 1.731 1.70
05-Apr-02 3.37 13.02 6.76 1.65 2.69 1.757 1.73
05-Apr-03 2.29 12.10 4.85 0.85 1.85 1.812 1.78
05-Apr-04 2.92 13.38 6.56 1.22 2.25 1.857 1.82
05-Apr-05 3.46 13.06 8.10 1.33 2.51 1.916 1.88
05-Apr-06 4.30 17.42 10.57 1.68 3.06 1.965 1.93
05-Apr-07 4.91 19.42 12.63 1.90 3.31 2.054 2.02
05-Apr-08 4.14 24.32 11.21 1.58 2.93 2.140 2.10
05-Apr-09 2.28 21.17 6.46 0.87 2.01 2.115 2.08
05-Apr-10 3.69 11.06 10.86 1.33 2.91 2.228 2.19
05-Apr-11 4.16 16.71 12.76 1.43 3.03 2.344 2.30
05-Apr-12 4.40 17.73 14.19 1.33 2.96 2.408 2.37
05-Apr-13 5.27 21.83 17.01 1.54 3.29 2.476 2.43
05-Apr-14 5.34 23.05 18.88 1.75 3.38 2.557 2.51
05-Apr-15 5.91 24.98 21.84 1.91 3.47 2.580 2.53
05-Apr-16 5.92 22.67 21.72 1.79 3.17 2.614 2.57
05-Apr-17 6.62 26.21 25.47 2.10 3.76 2.706 2.66
05-Apr-18 6.12 33.19 24.66 1.79 3.62 2.797 2.75
05-Apr-19 6.35 31.25 27.04 1.95 3.82 2.856 2.81
05-Apr-20 4.50 31.57 20.59 1.44 2.77 2.926 2.87
26-Feb-21 5.66 22.83 27.49 1.65 3.33 2.946 2.89

You will note that the FTSE100 has been comfortably ahead of the RPI for much of that time. Sometimes it falls back, but that effect is short-lived.

TJH

I have just found the price of F&C Investment Trust (FCIT) shares in April 1987 from Yahoo Finance website. They were exactly 30p. Assuming that the dividend return has averaged 1.5% over the past 34 years and the current price is 860p, then the total return is 47.6. The average annual total return is exactly 12%. FCIT is a good approximation of a global equity index tracker.

???

viewtopic.php?p=336469#p336469 suggests more like a 8.6% annualised total return for World. Figures I see for FCIT indicate a 9.8% annualised total return, compared to TJH HYP 10.2% annualised total return gain.

Yahoo finance data, more so older data, isn't that reliable.

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Re: Strategies to deal with inflation

#418182

Postby 1nvest » June 8th, 2021, 4:33 pm

https://uk.advfn.com/stock-market/londo ... t/81996638

F&C Investment Trust PLC Annual Financial Report
16/03/2020

Over the past twenty years, the total return was 367.3%, equivalent to 8.0% per annum


Whilst TJH HYP was 335% over a similar period.

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Re: Strategies to deal with inflation

#424021

Postby Adamski » July 1st, 2021, 3:47 pm

The way to deal with inflation seems to be in either stocks (World tracker up 10% ytd) or house prices (last 12 months up 13% according to the Mail). Obviously face risk of correction at any time (and stamp duty being reintroduced) but with interest rates so low where else can you get a decent return?

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Re: Strategies to deal with inflation

#424076

Postby Spet0789 » July 1st, 2021, 8:26 pm

Adamski wrote:The way to deal with inflation seems to be in either stocks (World tracker up 10% ytd) or house prices (last 12 months up 13% according to the Mail). Obviously face risk of correction at any time (and stamp duty being reintroduced) but with interest rates so low where else can you get a decent return?


Are you seriously suggesting that based on the performance of the past 6-12 months we can make inferences about the future impact of inflation on asset prices?

Look at the 1970s.

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Re: Strategies to deal with inflation

#424092

Postby 1nvest » July 1st, 2021, 11:39 pm

Recent 1 year gilt yields 0.03%, inflation 2.4% ... paramount to a 8000% tax rate

Warren Buffett back in 1977 said ...
The arithmetic makes it plain that inflation is a far more devastating tax than anything that has been enacted by our legislatures. The inflation tax has a fantastic ability to simply consume capital. It makes no difference to a widow with her savings in a 5% passbook account whether she pays 100% income tax on her interest income during a period of zero inflation, or pays no income taxes during years of 5% inflation. Either way, she is "taxed" in a manner that leaves her no real income whatsoever. Any money she spends comes right out of capital. She would find outrageous a 120% income tax, but doesn't seem to notice that 6% inflation is the economic equivalent.

The government can of course revise that taxation rate simply by printing/spending money that devalues all other notes in circulation (induce negative real yields).

Labour lost massive support due to its 1968 130% tax rate policy, In the US they have inflation bond options for private investors/individuals to buy into that protects them (iBonds), in the UK such options (National Savings) were removed by the Tories back in 2009.

One strategy might be to eject the Government that opted to impose such historic high levels of taxation.

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Re: Strategies to deal with inflation

#424261

Postby Gerry557 » July 2nd, 2021, 2:36 pm

Avi777 wrote:Hi,

Don’t know that much about finance. I have a couple of mortgages which includes a buy to let and moderate amounts of cash in various U.K. banks.

I am worried about what is happening with regard to potential inflation. Does anyone have any strategies to safe guard inflation wiping out my savings or in fact banks failing?

Am I better paying more into the mortgages? But then that erodes my pot of cash for a rainy day. Or buying gold as is a popular belief?

Any tips would be appreciated.


As others have pointed out, inflation might work for you. Debt effectively gets less, rents go up. You should also find that savings rates rise too. Your concern would be affordability. Can you manage mortgage increases and to what level? You might be on fixed rates so not an issue for a couple or 5 years maybe. Its about maintaining a differential between incoming and outgoing spending.

Investments generally do better over the long term, can you invest the rent to cover the mortgages. Investments paying 4% and growing annually, on a 2% fixed mortgage should work out over the long term. If you are currently just managing to cover the mortgages including the rents then you are pretty close to the edge. Effectively you are leveraging, which can work for you but also against when thing turn. If you are in that position then you need to take action. Pay off some mortgage and or increase savings but maintaining a float (6 months outgoings).

Banks should be less likely to fail as they have been required to build up reserves and currently have reduced dividends. Most have spare capacity rather than not enough although thank can always change. An increase in rates would actually help the banks!

Personally I would be investing all the rent to produce an income, unless your mortgage rates are higher. That should provide a reservoir, a growing income over time and the potential for capital growth and keep an eye on savings rates. Generally even if shares fall the income remains much more stable. Then inflation worries should reduce over time.

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Re: Strategies to deal with inflation

#424435

Postby GrahamPlatt » July 3rd, 2021, 1:29 pm

Nouriel Roubini proposes it’ll be stagflation we’ll be needing to cope with:

https://www.theguardian.com/business/20 ... al-economy

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Re: Strategies to deal with inflation

#424598

Postby brightncheerful » July 4th, 2021, 9:38 am

There's 'inflation' and 'inflation.

'inflation' is the ONS version, either RPI, CPI or CPIH depending upon your measurement preference. RPI is no long er an official statistic but it still widely used and the ONS continues to publish the figures. the constituents in ONS indices are updated every so often which makes long-term comparison effectively impossible. Using my RPI and Rent Calculator, possible the only one of its kind on-line (it enables percentage changes involving different months in different years to be calculated. and the percentage applied to whatever rounded rent or price all in one place) the RPI in January 1994 was 154.4 and in 2021 May 301.9, an increase of 95.53%. But that would presuppose the goods in the basket of goods constant.

Inflation is for personal cost of living: the prices of the good and services you buy regularly. Making a note of price changes over a a period of time say 3-5 years and calculating the percentage differences would provide a more accurate assessment of the effect of supplier inflation on your cost of living. For example, I have a massage every month, have done for years. I book a year's sessions in advance. A few years ago, each massage cost £40. during lock- down I paid £50. the person has now told me that from September it will be £65.

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Re: Strategies to deal with inflation

#424628

Postby dealtn » July 4th, 2021, 11:11 am

brightncheerful wrote:
Inflation is for personal cost of living: the prices of the good and services you buy regularly. Making a note of price changes over a a period of time say 3-5 years and calculating the percentage differences would provide a more accurate assessment of the effect of supplier inflation on your cost of living. For example, I have a massage every month, have done for years. I book a year's sessions in advance. A few years ago, each massage cost £40. during lock- down I paid £50. the person has now told me that from September it will be £65.


Except it isn't. What if that massage cost £1,000 and you decided to no longer have one? What does "your" inflation measure now say? I suspect it falls with your expenditure (now zero) not rises in line with the price of the massage.

That's obviously extreme, so what if the rise from £40 to £50 meant you only had 10 a year not 12, or now 9 with the rise to £65? What happens to all the other things you buy less of (probably quite marginally) because that extra £10 (massage cost) each month isn't available to spend elsewhere?

You need a pretty "complicated" calculation to take into account all the price rises and substitution effects across the cost of living basket, be that personal or across society, in arriving at the real inflation cost. That's what the ONS attempts to do, and why modern "complicated" methods are better, even if less well understood, such as using geometric averaging when most only learnt arithmetic averaging at school.

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Re: Strategies to deal with inflation

#424633

Postby richfool » July 4th, 2021, 11:30 am

Yes, a simple example, prior to covid, I had coffees out, almost daily at c £2.60 a cup. During covid, I bought the beans and made my own coffees at home, so saved a packet. Recently, I have had the odd coffee out, but after finding the prices have now gone up to c £2.75 and more, I have reverted to making them at home and rarely drinking out. So overall I am now spending a lot less on coffees.

The same principles can be applied to other expenditure and costs, to mitigate inflationary price rises.

If some of these hospitality venues, instead if jacking up their prices, post-covid, as so many have done, were instead to advertise "pre-covid" prices, and reduce their prices to pre-covid levels, they could well with be flooded out with a rush of customers! ;)

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Re: Strategies to deal with inflation

#424682

Postby jonesa1 » July 4th, 2021, 2:24 pm

richfool wrote:
If some of these hospitality venues, instead if jacking up their prices, post-covid, as so many have done, were instead to advertise "pre-covid" prices, and reduce their prices to pre-covid levels, they could well with be flooded out with a rush of customers! ;)


Unfortunately for many venues, they can't accommodate a rush of customers and remain compliant with distancing rules, so in order to maintain revenue they need to increase prices. Add to that increased costs (supposedly there's a massive labour shortage in hospitality as well as increases in the cost of supplies they use). Once restrictions are lifted maybe some venues will attempt to compete on price, but I suspect most rises are here to stay.


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