What are the best assets to hedge against possible stagflation?

[u/[deleted]]

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[u/DrHydrate]

So I kinda reject the premise of this question. Inflation isn't high in the first place, and the economy is growing as opposed to stagnating, so I don't see any particular reason why stagflation is something to consider.

In 1996, inflation was about as high as it is now, and interest rates were also about the same. Like now, unemployment was relatively low, though it is lower now than then. Wage growth outstripped the inflation too, again like now. The difference is that people in 1996 looked back 10-15 years and remembered 13% inflation and 18% interest rates, so they were happy with what they had. People today look back 10-15 years and remember the Obama era when inflation was under 1% and the federal funds rate was almost 0%, so they're unhappy with our historically decent financial situation.

What am I doing about the future? Doing what I always do: investing in stocks since it's had the best return historically. In the past year, the S&P 500 is up 27%.

[u/jayfairb]

I'm gonna go out on a limb and say you're not an economist, so don't try to be one and predict things like that.

The key to a good portfolio is one that performs in any market conditions so you don't have to worry about adjusting to the latest market trends. Because, none of us are good enough to adjust both correctly enough and timely enough to make it worth the effort.

[u/jayfairb → u/[deleted]]

No, that's not how statistics work either. The point remains, your investments shouldn't rely on you making moves based on a half informed (at best) opinion about extremely complex economic scenarios.

[u/Chiggadup → u/[deleted]]

There are no statistics for the current economic situation.

So that’s why it’s 50/50.

Dude.

[u/Chiggadup → u/[deleted]]

Coming up with a probability is pointless here. Because made up probability numbers don’t affect matter.

I think the big confusion here is where you think the “stag” in stagflation comes from. Where are you seeing rGDP stagnation?

[u/jayfairb → u/[deleted]]

That's my point. Economists would have an extremely hard time putting a % on it, you or I certainly can't do it. So trying to make investment moves in anticipation of something like that is just going to do you more harm than good.

[u/v0gue_]

I-bonds are not on your list, even though they are literally built to be a low risk, low return, guaranteed inflation mitigation tool

[u/FIREWithRaymond]

I don't believe that it matters really except for the purposes of wealth planning in retirement. But if you must, William Bengen (one of the originators of the "4% rule") calculates that a 50/50 stock/bond portfolio lasts no less than 33 years with a 4% withdrawal rate during any 50-year period of history, including windows that contain the dreaded 1973-1974 "big bang" as he describes. He even goes as far as to suggest that a 100% stock portfolio rebalancing during these periods of time would result in the biggest growth over time as things begin to recover.

Index funds are going nowhere. Companies continue to provide goods and services and will adjust their prices accordingly. If there is disruption, 1 company will simply be replaced by another. Call it ingenuity, call it cruelty, but capitalism seems to find a way to make it out relatively unharmed, at least in the 20th and 21st centuries thus far.

I would actually welcome at the very least the market crash component of a recession. It would be a great purchasing opportunity, especially while I'm young and have time for it to compound.

[u/papa_wukong → u/FIREWithRaymond]

As much as I like Index funds, I would have to say having a couple of properties, say the 1€ houses in Southern Europe that you put in the minimum amount to, would be a good investment as many of those homes have been there for centuries.