How diverse are your investments? Huge inflation coming?

Frugal_Millionairess

I was visiting with my dad this weekend and he's convinced in the U.S. at least, inflation is about to get out of control. As a result, he's moving even more money out of C.D.s (he's never believed in the stock market) and into land (farms, rental units, apartments and such).

Prior to our chat, I was pretty comfortable that my husband and I were diverse enough. We have about 70 percent of assets divided between small cap, large cap, and emerging markets. We put about 20 percent in angel investing opportunities, and keep 10 percent behind as liquid assets in money markets.

Now my dad is very old school, but also very successful financially, and he has me wondering if we are too heavily weighted in what he thinks of as "places you can't even see or touch your money."

He's been encouraging us to do some real estate investments, but I'm not sure how well that would work for us. He's been in construction for years and has his own equipment, a huge network of plumbers, electricians, etc. to call on when problems come. We are in another state and unable to tap into his network and not particularly handy ourselves, thus would be hiring out a lot more of the work and therefore lowering our return rates.

From reading other posts here, there's obviously a lot of successful savers. Are most of you diversified beyond stocks/money markets?

[Deleted User]

oh yes of course, diversification is key

we have a very good safety net in ns&i index linked savings certs

Masomnia

I personally don't believe there is going to be significant inflation in the UK, at least.

As for diversification, well, I don't really have enough to capital to diversify to the extent that I'd like to. I have a fair amount in a fund based on financial services (bet you can't guess what!) and some shares in a company in the media sector. The rest is cash.

I've always considered that equities are a good hedge against inflation anyway. Afterall, if prices are rising then so should profits, and with that shareprices.

Rollinghome

kittie wrote: »

oh yes of course, diversification is key

Or you could follow Andrew Carnegie's dictum: "The way to become rich is to place all your eggs in one basket and then watch that basket". His point being that diversification ensures you never maximise returns. Unfortunately that approach is dependent on having his ability for choosing the right basket.

Reaper

Everybody is expecting high inflation soon. I think that is why long term fixed interest accounts are paying so much - it's hard to persuade people to take them out otherwise. However my own feeling is it will be a while yet before it arrives.

You are reasonably well diversified already, though there is more you can do if you are worried. Commodities for example - and I expect the gold bugs to arrive any second now...

Even better, as kittie says, is anything index linked though the rates are low at present. It's something I will probably go for later, though not just yet.

Also the stock market won't necessarily do relatively worse during high inflation provided companies feel able to pass on the rises in their costs. Inflation affects companies in the same way it hits individuals - unevenly. Higher taxation may hold the market back a bit too.

I don't know about the US property market. If you don't want the hassle of going for it directly there are always funds you can buy in to. It is also the only practical way to get into commercial property for the average investor.

theGrinch

inflation is bad for savers and good for borrowers. the biggest borrowers being government. a dose of inflation would certainly help them!

cepheus

Or you could follow Andrew Carnegie's dictum: "The way to become rich is to place all your eggs in one basket and then watch that basket". His point being that diversification ensures you never maximise returns. Unfortunately that approach is dependent on having his ability for choosing the right basket.

There is something to be said for that philosophy in a business friendly environment.

Be safe and earn money so slowly it makes little difference. However, be reckless and either you will earn a fortune if it goes right, or you simply default on your creditors and/or the government will bail you out if it goes all wrong. In other words our system rewards recklessness by providing limited downside. It seems to me like high risk = a net positive outcome?

Does money saving really pay?

Perhaps debtors prisons weren't a bad idea after all, we certainly wouldn't have had the banking crisis.

adamr7747

I agree that high inflation is likely. I don't follow your logic of investing in property as a response though. What makes you think house prices will rise faster than the general price level?

Adam

MacsReturns

I expect the gold bugs to arrive any second now...

You rang?

A bit of gold is good to have (the real stuff, not ETFs), a bit of silver even better. And the longer ago you can buy it, better still... by which I mean now's probably not a great time to buy, though I do believe in having some of what people like to call 'real money' in the portfolio.

I'm undecided on the inflation issue. I don't see Zimbabwe here any time soon, but QE is a clear inflationary factor. Other bods who are more economically educated have also made good cases for deflation, too. I try to follow the arguments of the deflationists vs inflationists, but frankly cannot decide

The gold I've bought over the past year now has a monetary value about 20% above what I've paid for it. However, I don't see it as investment, but insurance. I don't count it as having "made" 20% - that could only happen if I sold it. Which I'm not doing. Where it is it will not get vaporised, nationalised, bailed-out, seized or taxed - can't always say that about other assets. So - insurance, not investment.

I'd be very careful about property. Go basic - there's a lot of empty commercial real estate, and if the 'recovery' doesn't come along that sector will only depreciate. Land is a different matter, IMHO. Alas, my portfolio is not large enough. Property values are only notional - not real until you sell - IF you can sell. My only property is my home, and through boom and bust I've always held that its value is exactly "1 home". House price speculation is not something I have any respect for, and 'taking equity out' by raising mortgages in line with a 'rising market' is a mug's game. Any change in price is only realised at the point of sale, not before.

I keep as little as possible in stocks - the sole exception being some not very large pensions, and some trivial shareholdings I don't fret about. Main savings are in cash ISAs.

Big review due when the mortgage is paid off.

Inflation or not, I feel the next few years are going to be a period for keeping what you can close at hand, preferably in hand. But that's just me, not advice

MacsReturns

theGrinch wrote: »

inflation is bad for savers and good for borrowers. the biggest borrowers being government. a dose of inflation would certainly help them!

Precisely - that is the biggest reason to fear inflation right now. It's happened over and over before - governments love inflating away their deficits.... and there are unprecedented deficits at present.

ed123_2

...I think the US situation is different to us in Blighty,,,If dad is talking about the US I think he is spot on...I have read that the US property market has hit rock bottom & is starting to rise in certain areas and they are continuing with their massive QE even though the US is ahead of us in that they are on the way out of recession...this spells high inflation so land, rental units (with lower unemplyment) look like a good bet.
Over here I like we are in a different situation & lag the US re recovery. We are much more indebted (public/private on an individual pro rota basis) and I think the property market has futher to fall. I also think we could be infor a double dip recession here and I feel that the rise in the stock market is due to the banks placing their QE money here. I would be mainly cash at the moment as I feel are inflation is futher off than the US and would index link as much as possible. I agrree with dad in that I would keep well away from the stock market.....ed