Inflation

Jimmyc

Morning all,

How is everyone feeling about inflation? This is obviously quite stressful times for a lot of people for many reasons. 

I no nobody can predict how long this will last, what’s peoples thoughts on how long this will last, and have people changed investments amounts to counteract inflation eroding spending power. 

SouthCoastBoy

Yes inflation is a concern for me and most probably everybody, personally I think we will see a peak of around 12%, wouldn't be surprised if it hit 10% this year. I am planning for inflation to be around 6 or 7% over the next few years. In my spreadsheet I have inflation as 10,12,10, 8, 6 for the next five years and growth of 0% on investments for the next 3 years.

I have also changed a substantial amount of my portfolio away from growth funds into more defensive funds, this started around 12 months ago.

The main issue I have is my current works DC pension, the choices aren't great and therefore I can't get the exposure to the finds I would like. Fortunately about 2/3rds of my investments are outside my company pension so I can offset that a little.

biscan25

Definitely a concern, it has been for the last 18-24 months.
I've diversified my (non-cash) investments outside of my pension which were previously almost 100% equities (which provide some, but very imperfect hedging), to include some "real" assets (I bought a house!, some alternative luxury goods etc, the odd NFT ), but pension is still 100% equity. 

SouthCoastBoy

biscan25 said:

Definitely a concern, it has been for the last 18-24 months.
I've diversified my (non-cash) investments outside of my pension which were previously almost 100% equities (which provide some, but very imperfect hedging), to include some "real" assets (I bought a house!, some alternative luxury goods etc, the odd NFT ), but pension is still 100% equity. 

Interesting about buying a house to protect some wealth, I have considered buying a larger house for this reason, but I'm not sure if the house will be inflation proof considering the current high house prices, associated buying and selling costs and the fact interest rates should be rising (not convinced the BoE will do this to any great level though, think they will drag their feet).

Bravepants

SouthCoastBoy said:

biscan25 said:

Definitely a concern, it has been for the last 18-24 months.
I've diversified my (non-cash) investments outside of my pension which were previously almost 100% equities (which provide some, but very imperfect hedging), to include some "real" assets (I bought a house!, some alternative luxury goods etc, the odd NFT ), but pension is still 100% equity. 

Interesting about buying a house to protect some wealth, I have considered buying a larger house for this reason, but I'm not sure if the house will be inflation proof considering the current high house prices, associated buying and selling costs and the fact interest rates should be rising (not convinced the BoE will do this to any great level though, think they will drag their feet).

It's not so much the house that is inflation proof, but the long period fixed-rate mortgage you obtain to buy the house. If the mrtgage interest rate is 2% over 5 or 10 years (unlikely now I think) and inflation is 7% for the same period then you are effectively inflating away the mortgage. It relies on getting a long term low interest rate, and inflation being high for the same period.

Albermarle

and have people changed investments amounts to counteract inflation eroding spending power. 

I think people would like to do this, but there is no obvious route to do so , in the shorter term at least .
So in the absence of any obvious solutions, I have mainly left mine alone and accept the hit .

SouthCoastBoy

Bravepants said:

SouthCoastBoy said:

biscan25 said:

Definitely a concern, it has been for the last 18-24 months.
I've diversified my (non-cash) investments outside of my pension which were previously almost 100% equities (which provide some, but very imperfect hedging), to include some "real" assets (I bought a house!, some alternative luxury goods etc, the odd NFT ), but pension is still 100% equity. 

Interesting about buying a house to protect some wealth, I have considered buying a larger house for this reason, but I'm not sure if the house will be inflation proof considering the current high house prices, associated buying and selling costs and the fact interest rates should be rising (not convinced the BoE will do this to any great level though, think they will drag their feet).

It's not so much the house that is inflation proof, but the long period fixed-rate mortgage you obtain to buy the house. If the mrtgage interest rate is 2% over 5 or 10 years (unlikely now I think) and inflation is 7% for the same period then you are effectively inflating away the mortgage. It relies on getting a long term low interest rate, and inflation being high for the same period.

Yes I have considered locking in a 10 year fixed rate mortgage on a larger property for this very reason, the only negative consideration if house prices decrease say 30% in this period.

coyrls

Bravepants said:

SouthCoastBoy said:

biscan25 said:

Definitely a concern, it has been for the last 18-24 months.
I've diversified my (non-cash) investments outside of my pension which were previously almost 100% equities (which provide some, but very imperfect hedging), to include some "real" assets (I bought a house!, some alternative luxury goods etc, the odd NFT ), but pension is still 100% equity. 

Interesting about buying a house to protect some wealth, I have considered buying a larger house for this reason, but I'm not sure if the house will be inflation proof considering the current high house prices, associated buying and selling costs and the fact interest rates should be rising (not convinced the BoE will do this to any great level though, think they will drag their feet).

It's not so much the house that is inflation proof, but the long period fixed-rate mortgage you obtain to buy the house. If the mrtgage interest rate is 2% over 5 or 10 years (unlikely now I think) and inflation is 7% for the same period then you are effectively inflating away the mortgage. It relies on getting a long term low interest rate, and inflation being high for the same period.

It relies more on your income keeping pace with inflation.  Your loan won't be inflated away if your income doesn't inflate.

tigerspill

SouthCoastBoy said:

Yes inflation is a concern for me and most probably everybody, personally I think we will see a peak of around 12%, wouldn't be surprised if it hit 10% this year. I am planning for inflation to be around 6 or 7% over the next few years. In my spreadsheet I have inflation as 10,12,10, 8, 6 for the next five years and growth of 0% on investments for the next 3 years.

I have also changed a substantial amount of my portfolio away from growth funds into more defensive funds, this started around 12 months ago.

The main issue I have is my current works DC pension, the choices aren't great and therefore I can't get the exposure to the finds I would like. Fortunately about 2/3rds of my investments are outside my company pension so I can offset that a little.

Out of interest, which defensive funds have you used?

Simes122

Interesting point on the house/mortgage as a hedge against inflation.  I'm on 1.7% fixed for another 3 years.  I was contemplating overpaying my 10% allowed overpayment each year for the next 3 years, to lower my monthly mortgage payments in retirement (I retire later this year, or early next).   But with inflation running at 7% and my loan costing me 1.7%, and my DB pensions being index linked, it seems instinctively to make sense to keep the low cost debt, while my income is rising by inflation (or at least CPI rates).   And then at the 3 year point, if mortgage rates have gone through the roof, pay down the mortgage in a lump at remortgage time.   Does this make sense as an approach?

SouthCoastBoy

tigerspill said:

SouthCoastBoy said:

Yes inflation is a concern for me and most probably everybody, personally I think we will see a peak of around 12%, wouldn't be surprised if it hit 10% this year. I am planning for inflation to be around 6 or 7% over the next few years. In my spreadsheet I have inflation as 10,12,10, 8, 6 for the next five years and growth of 0% on investments for the next 3 years.

I have also changed a substantial amount of my portfolio away from growth funds into more defensive funds, this started around 12 months ago.

The main issue I have is my current works DC pension, the choices aren't great and therefore I can't get the exposure to the finds I would like. Fortunately about 2/3rds of my investments are outside my company pension so I can offset that a little.

Out of interest, which defensive funds have you used?

Energy, telecoms, tobacco etc. and high paying dividend stocks I think will do well over the next cycle relative to growth stocks so focused on energy funds, mining/natural resources and income funds thar are paying a good dividend and have quite a large weighting in areas above. Not advice, do your own research etc.

Obviously could under perform, really just trying to protect my funds in line with inflation, not so bothered about growth. Time will tell. I still have some money in growth funds just not as much