The three investment classes that fight inflation best are commodities, real estate ad shares.
A reader asked me yesterday about commodities when he wrote:
“Gary, In a number of the recent articles you mention commodities as a hedge against inflation but you don’t mention what or where you would invest in commodities. I understand that commodities are a touchy subject and are not for the faint of heart but I also have taken a number of the courses offered by Ken Roberts and though I am not investing at the present, I would consider commodities as a possibility.
“Benefits are a faster potential profit than stocks, possibility of a large profit (as well as a large loss), and relatively small investment in terms of time and the money to get in. Downside is, obviously, more risk. Futures are very risky with possibilities of very high losses, but options have a real potential with fixed loss amount. So the question is, would you invest in commodities and if so when and where?”
Here is my reply:
“Mike for the reasons you stated I do not invest in commodities. As shown in my recent portfolio breakdown, I have all cash, stocks, bonds and real estate. For those who like investing in commodities the precious metals are the first logical choice.”
However I liquidated most of my precious metals last year. I took a profit yes, but my main reason for liquidation was a long term research by asset allocation expert, Ibbotson Associates, that looked at various returns over 95 years of differing assets classes under varied conditions.
The asset classes we bonds, T-bills. Equities, Housing and Silver. Over the entire 95 years the return was:
Equities: 11.9% per annum
Housing: 6.7% per annum
Bonds: 4.8% per annum
T-Bills: 4.6% per annum
Silver; 4.2% per annum
However the results were very different when the economy was split and viewed in different conditions, Stable. Moderate Inflation, Rapid inflation.
During Stable Times the reruns of the asset classes were:
In Moderate Inflation this barely changed to:
Rapid inflation brought huge changes:
I may add precious metals later but since equities performs best in all scenarios except rapid inflation and also performed so well during rapid inflation this asset class is currently my choice to add with real estate.
Here is my current multi currency portfolio breakdown
Cash, Stocks & Bonds
US dollar 12.0%
Danish kroner 7.0%
Swedish kroner 3.0%
Canadian dollar 3.0%
British pound 3.0%
Turkish lira 2.0%
Hungarian florin 2.0%
New Zealand dollar 2.0%
Brazilian real 1.0%
Norwegian Kroner 1.0%
Australian dollar Negligible
Cash, Stocks & Bonds Percentage of Portfolio Total 46%
Agricultural Land 37%
Commercial Property 3%
Ecuador Property 14%
Real Estate Total Percentage of Portfolio 54%
Plus I am buying or trying to buy more Ecuador real estate which will drop my dollar position to 4% of my portfolio.
Learn more about inflation at https://www.garyascott.com/2008/06/03/2139.html
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