Investment choices for an inflation pessimist?

[Deleted User]

Thrugelmir said:

michaels said:

Thrugelmir said:

michaels said:

So any fund/etf recommendations for short linkers/tips?

I've held 

INXG.L ~

ISHARES II PLC GBP IDX-LNK GILTS UCT ETF

for a few months. 

Any reason for choosing UK?  Also full market rather than short term?  

Currency.

Uncertainty. 

From $1.38 Thrugelmir sees the £ going up and I see it going down. Ah well, that's what makes a market. Time will show one us to be wrong, and it wouldn't be the first time for either of us.

Thrugelmir

ZingPowZing said:

Thrugelmir said:

michaels said:

Thrugelmir said:

michaels said:

So any fund/etf recommendations for short linkers/tips?

I've held 

INXG.L ~

ISHARES II PLC GBP IDX-LNK GILTS UCT ETF

for a few months. 

Any reason for choosing UK?  Also full market rather than short term?  

Currency.

Uncertainty. 

From $1.38 Thrugelmir sees the £ going up and I see it going down. Ah well, that's what makes a market. Time will show one us to be wrong, and it wouldn't be the first time for either of us.

Just to clarify your assumption. INXG was bought (at the time) as a defensive measure and also as a portfolio diversifier. 

Linton

JohnWinder said:

Linton said:

Index linked gilts are expensive, they have 2-3% inflation already included in the price.  So they wont provide protection against "normal" inflation. 

Well, it’s not only linkers that have inflation already included in the price; it’s all nominal bonds also. When anyone buys a bond they are handing over their money for a defined period, and they expect compensation for that for the risk of their money never being repaid and also for the likely loss of purchasing power when they get their principal returned; so all bonds have anticipated inflation baked into their price.

The second point is that linkers do protect against ‘normal’ inflation; they protect against all and any inflation whatever its level is: 'Index-linked gilts differ from conventional gilts in that both the semi-annual coupon payments and the principal payment are adjusted in line with movements in the General Index of Retail Prices in the UK’ https://www.dmo.gov.uk/data/gilt-market/index-linked-gilts/

I think we've been through this before, and wonder if we're saying the same thing many times in these forums rather than many things once.

Couple of other issues to consider: if you’re going to up-end your portfolio to something that suits an inflationary period, and therefore by definition doesn’t suit a different period so well, then you’d better be sure there’s going to be problematic inflation or you’ve got the wrong portfolio. 

Secondly, if unexpected damaging inflationary periods can crop up, it means they can do that unexpectedly, so one’s portfolio always needs to be positioned to deal with it. Lastly, different asset classes have higher and lower returns as a characteristic eg stocks higher than bonds, but those relationships seem not to have changed enormously during periods of high or low inflation. The big impact is that all real (after inflation) returns either scale up (with falling inflation) or down (with rising inflation). See this chart: https://www.firstlinks.com.au/inflation-impacts-different-types-investments

Lets explain it simply.

You spend £1K on inflation linked bonds that mature in 10 years time.  Inflation between now and then is 2.5% per year.  What do you get in 10 years time?  If the investment protected you against inflation you would get £1000 X 1.025^10=£1280 (ignoring the small amount of additional interest).  However as the bonds are very expensive now you would receive fewer individual bonds for your £1000 than would otherwise be the case and what you would actually get at by maturity is about £1000.

The market adjusts bond prices so that they all give similar total returns at a given maturity.  Since inflation linked bonds have the potential to return much more than normal bonds under the expected circumstances they would return a little less.

SouthCoastBoy

Interesting comment from the BoE departing chief economist, https://www.bbc.co.uk/news/business-57670734

handful

SouthCoastBoy said:

Interesting comment from the BoE departing chief economist, https://www.bbc.co.uk/news/business-57670734

All the warning signs are there. I'm not a finance expert but have been around the logistics industry all of my working life (over 40 years) and it's always been a very good barometer for the wider economy. I've never seen inflationary pressure like we are seeing at the moment. Thanks for posting.

[Deleted User]

handful said:

SouthCoastBoy said:

Interesting comment from the BoE departing chief economist, https://www.bbc.co.uk/news/business-57670734

All the warning signs are there. I'm not a finance expert but have been around the logistics industry all of my working life (over 40 years) and it's always been a very good barometer for the wider economy. I've never seen inflationary pressure like we are seeing at the moment. Thanks for posting.

We all have opinions.  Experience tells me that sometimes I am wrong.  The future is unpredictable, not reliably anyway.  A good plan accounts for the possibility of various scenarios.  

Also worth noting, that Mr  market, while not foolproof, is as good a predictor as any. And its predicting long term inflation to start abating, to around 2.5% a year over 10 years. 

michaels

At the moment i think blip is still favourite althiugh I suspect we are talking 5+% not 4%.

We are also likely to see commodities turn too, the ftse100 hasbeen surprisingly weak considering what it is made up of. If i were a market timer i would be going under weoght the footsie but buying short linkers to hold for12 months only.