Inflation concerns

Joan1969 · #1 Apr 20, '11, 12:56 pm

Hi to all,

Anyone else out there worried about preserving wealth against inflation? We've bought some gold, but I don't want any more since I don't want all our eggs in one basket. We also have a house. Anybody else have ideas about what to do? Just looking for input. My husband is not interested in overseas investments.

God Bless,
Joan

Big Ro · #2 Apr 20, '11, 2:19 pm

Gold and commodities in general are seen as traditional hedges against inflation. However, the increased use of ETF's has distorted the market place and the hedge value in general. Oil in particular is increasingly seen a a currency rather than a true commodity. Remember though, buying the physical commodity is the best way to use commodities as a hedge. Investing in derivatives such as Oil/gold Futures is not as effective. The widesprwead increase in the desirablity of Futures as a main line investing tool has caused them to be increasingly volatile and more divorced from the supply demand considerations which used to rule these markets. Oil, for instance, is not rising because of any real supply shortage. It's rising because the value of the dollar is falling. They have an inverse relationship. So as the dollar falls or rises against the Euro, the price of oil goes in the opposite direction, for the most part. I say the Euro because the value of the Yen is being distorted due to the Earthquake and subsequent Tsunami. Finally, I think it's a bit early to take up an anti-inflationary investing strategy. Inflation at the wholesale level showed an uptick but Durable Goods orders continue to be up and down. Economic growth is improving but not at a rate that would indicate widespread demand pull inflation. Wages are not expected to rise significantly at all anywhere in the visible horizon, so it's doubtful that we'll see any sort of wage push inflation. We are seeing inflation due to a rise in commodities prices but this exigent circumstance will probably be offset by the demand destructuion that will almost for sure occur as prices continue to rise. We're already seeing that at the retail level. My opinion.

Catholic90 · #3 Apr 20, '11, 2:29 pm

Mutual funds are a good investment. Stocks can be a very good investment if you have a broker who understands the markets.

MtnDwellar · #4 Apr 21, '11, 3:20 am

AT&T has always been a darling of conservative investors - over 6% annual dividend.

I may be totally wrong, but I think that it is a good time to stop buying gold.

Joan1969 · #5 Apr 21, '11, 7:52 am

Thanks for the opinions, especially to you, Big Ro.

We bought the gold over a year ago, and have already seen a big gain. Even if there's a big drop, we shouldn't actually lose overall. I'll think about all the suggestions.

God Bless,
Joan

SamH · #6 Apr 21, '11, 3:19 pm

If you truly believe high inflation is just around the corner - debt with fixed interest rates to buy tangible assets is a great way to go.

Buy a rental house or other rental property with a fixed rate loan, when high inflation hits the price of the property goes up as does your rent, but the cost to own (besides taxes) stays the same.

Elixir · #7 Apr 21, '11, 4:37 pm

Quote:

Originally Posted by Joan1969

Hi to all,

Anyone else out there worried about preserving wealth against inflation? We've bought some gold, but I don't want any more since I don't want all our eggs in one basket. We also have a house. Anybody else have ideas about what to do? Just looking for input. My husband is not interested in overseas investments.

God Bless,
Joan

The simplest and oldest advice applies because this time is just like all the other recessions.

A diversified selection of stocks that pay dividends regularly AND increase dividends over time is a tried and true way to keep pace with inflation.

General Mills, Proctor & Gamble, Johnson & Johnson, AT&T are just a very small example of companies that have tremendous track records of increasing dividends every year and all pay out over 3% which is what inflation is historically.

Don't disregard overseas companies. In the pacific rim from China to India there are going to be 1 billion people between the ages of 25 - 30 years old in the next decade. They will want to buy stuff. A reasonable amount of international exposure is critical in the global economy. It just is.

Don't out-think the room. Just make a plan and stick to it...that's called investing. Playing the stock market and commodities...that's called gambling.

SamH · #8 Apr 22, '11, 1:27 pm

I wouldn't be a big fan of stocks for the coming round of inflation, high interest rates and unemployment. Picture a repeat of the stock market from December 1964 to December 1981 - the Dow rose less than one point in those 17 years (The Dow went from 874.12 to 875.00).

Elixir · #9 Apr 22, '11, 5:31 pm

Quote:

Originally Posted by SamH

I wouldn't be a big fan of stocks for the coming round of inflation, high interest rates and unemployment. Picture a repeat of the stock market from December 1964 to December 1981 - the Dow rose less than one point in those 17 years (The Dow went from 874.12 to 875.00).

Well, over the past 10 years the S&P was flat...but if you owned dividend paying stocks or mutual funds then you did well.

Market value of an investment is only important if you're looking to sell, ideally for more than you paid, but if you're going to hold a quality investment that pays well then there's no need to freak out over a decline in paper value. Remember: you get paid based on the number of shares you own, not the market value of the stock or fund.

Have a look at a historical dividend chart for Procter & Gamble, they've increased them every year for many, many years: http://www.dividend.com/historical/stock.php?symbol=PG

I also wouldn't own one stock but a selection covering many business sectors because you can't predict which part of the economy will be performing well. It's pretty easy to put together a group of 10 - 20 stocks that have increased dividends for a very long time and covers a broad range of business types: tech, industrials, utilities, etc.

That said there's always risk, you have to understand that but the reality is that you must be willing to take that on but you can also minimize that risk by the investments you choose.

**ProVobis** · #10 Apr 22, '11, 7:19 pm

Inflation is already serious at the producer level. Will affect consumer goods eventually and possible widespread shortages. My friend, a breadsmith, keeps telling me the cost of wheat and other supplies is making it impossible to keep producing, even though her customer base is healthy. Bigger businesses, given enough cash, could hedge their production, but even the cost of options and futures is making that difficult.

I was reading where Goldman Sachs would just love to short the oil market at these levels but also realize the risks there are growing.

Personally I wouldn't invest in anything when interest rates are so low and the amount of leveraging is so high. There's almost a sure crash to follow.

Joan1969 · #11 Apr 23, '11, 9:23 am

I'm glad to have gotten a conversation going! Elixir, I like your advice. I can talk it over with my husband. I am not looking to anything that would involve all our money, obviously, just some other ways to diversify and have different ways to invest. We already have a large mortgage on the home, so we have real estate covered for now. My only interest is in preserving the value of what we have, not in making a lot (not that that would be a bad thing!

)

God Bless,
Joan

SamH · #12 Apr 25, '11, 6:20 am

Quote:

Originally Posted by Elixir

Remember: you get paid based on the number of shares you own, not the market value of the stock or fund.

Have a look at a historical dividend chart for Procter & Gamble, they've increased them every year for many, many years: http://www.dividend.com/historical/stock.php?symbol=PG

I'll use your example. PG trades at $63 per share. Invest $63 and get a whopping 48 cents per year return - or .76% return not even 1% with inflation running 6% per year - you're losing value every year you own it. Even if you bought it at its low for the year ($39) your return is only 1.23% - still way under the inflation rate.

**puzzleannie** · #13 Apr 25, '11, 6:29 am

inflation to preserve our "wealth" as in retirement savings is not an issue for us, as it's opposite, the recession, has pretty much diluted it already.

Elixir · #14 Apr 25, '11, 6:11 pm

Quote:

Originally Posted by SamH

I'll use your example. PG trades at $63 per share. Invest $63 and get a whopping 48 cents per year return - or .76% return not even 1% with inflation running 6% per year - you're losing value every year you own it. Even if you bought it at its low for the year ($39) your return is only 1.23% - still way under the inflation rate.

It's the income from investments that I'm primarily concerned with and talking about. The market value for PG or IBM or General Mills or Emerson Electric or 3M is not going to grow at a great rate but the income they pay increases regularly over time.

There's a world of stocks out there but I'm not a stock jockey, I'm only interested in ones that give me a raise each year. If you regularly invest in companies that raise their dividends you will have a rising income over time. And...if you invest in companies that are paying over 3% dividends and consistently raise their dividends each year your income will keep pace with inflation (historically).

It's a simple plan that has worked for me. If my portfolio is up 5% and yours is up 9% then we're both happy. If we're both down 15% but I'm still getting pay raises from my stocks then I'm still happy.

No right or wrong way but the important thing is to develop a plan and then work your plan. Active trading is a sucker's game IMO.

MtnDwellar · #15 Apr 26, '11, 4:52 am

Quote:

Originally Posted by SamH

I'll use your example. PG trades at $63 per share. Invest $63 and get a whopping 48 cents per year return - or .76% return not even 1% with inflation running 6% per year - you're losing value every year you own it. Even if you bought it at its low for the year ($39) your return is only 1.23% - still way under the inflation rate.

That should be .48 per quarter. At current dividend, $1.92/year.