Is There a Safe Way to Beat Inflation?

[FallenApple]

Are there any non risky ways of beating the inflation rate( 2% annually I think)? I'm all for saving, but the fact that cash loses value frightens me. Investing is also risky too. Are there any non volatile, surefire way to beat inflation?

 

[jedishrfu]

There’s a lot of advice online to checkout

https://www.thebalance.com/how-to-beat-inflation-2466531

Some folks believe that you can’t beat index funds as an investment vehicle to hedge against but it’s best that you do this research and not rely on any advice we give you. You can still lose out if you choose the wrong vehicle and that’s why they always recommend diversifying into multiple funds.

 

[BWV]

Yes, there is a government guaranteed way to beat inflation, today you can beat it by 86 bps per year for ten years:

https://www.treasury.gov/resource-c...rest-rates/Pages/TextView.aspx?data=realyield

 

[symbolipoint]

Are there any non risky ways of beating the inflation rate( 2% annually I think)? I'm all for saving, but the fact that cash loses value frightens me. Investing is also risky too. Are there any non volatile, surefire way to beat inflation?

What is the intent of the question? Is it about handling money and in what to invest? Is this a more basic or general question about achieving wealth as in being able to make yourself as what to trade? Some individuals are smart in how they invest in themselves to become employable in gaining jobs with good or great salaries - they earned degrees in practical fields and learned or gained skills that employers want, and therefore get into job positions more easily. Then, save whatever is earned in excess of what they need.

 

[FallenApple]

What is the intent of the question? Is it about handling money and in what to invest? Is this a more basic or general question about achieving wealth as in being able to make yourself as what to trade? Some individuals are smart in how they invest in themselves to become employable in gaining jobs with good or great salaries - they earned degrees in practical fields and learned or gained skills that employers want, and therefore get into job positions more easily. Then, save whatever is earned in excess of what they need.

I know that getting a high paying job and constant promotions will help me stay ahead of the curve. But what about the money that is already saved? Time will age that money's value to the point of feebleness.

So the intent of the question is about preserving the value of what is currently accumulated.

I'm already saving in excess of what I need. Now, how do I keep that savings in a risk free manner? Time is the silent killer of cash. I need to somehow save those savings. I can add to the pot by saving more, but every dollar will weaken with time. Thats disconcerting.

 

[symbolipoint]

I know that getting a high paying job and constant promotions will help me stay ahead of the curve. But what about the money that is already saved? Time will age that money's value to the point of feebleness.

So the intent of the question is about preserving the value of what is currently accumulated.

I'm already saving in excess of what I need. Now, how do I keep that savings in a risk free manner. Time is the silent killer of cash. I need to somehow save those savings. I can add to the pot by saving more, but every dollar will weaken with time. Thats disconcerting.

In that meaning, you cannot. You can either do one or both of these: Invest in what will be lucky (if you can predict what that or those are), or invest in yourself to be attractive to high-paying employers for a high-paying job, like learning skills which those employers need and earn a degree in what they want to hire. When you earn more money than you need, SAVE SOME, and continue this saving. That would be the only way to stay ahead of inflation.

 

[FallenApple]

In that meaning, you cannot. You can either do one or both of these: Invest in what will be lucky (if you can predict what that or those are), or invest in yourself to be attractive to high-paying employers for a high-paying job, like learning skills which those employers need and earn a degree in what they want to hire. When you earn more money than you need, SAVE SOME, and continue this saving. That would be the only way to stay ahead of inflation.

I was thinking that maximizing the expectation( probability of winning times the reward) in a low volatility asset is better than just letting the money sit there. Once one has already successfully established a well funded emergency savings fund, the extra money on top of that is just losing value. I'm willing to accept time dependent losses on the emergency fund since I basically view it as the price of insurance and will replenish that fund with extra earnings over time to adjust for inflation. But extra money past that basic minimum amount for an inflation adjusted emergency fund?, well, I'm just losing money since it really isn't insurance for anything.

I agree, saving some money matters. I rarely spend on leisure. Leisure is basically a liability since it doesn't generate gains and only result in losses. I'm not merely just saving some, I'm hoarding most of it.

Im already investing into my skillsets to make myself more employable in a high demand field and I already have degrees, so there's not much money I can throw back into it to get something out of it. That extra cash is just sitting there rotting away. It's just too risky keeping it idle.

 

[Vanadium 50]

This question is ill-defined. First, time scale matters. It's one thing to beat inflation over decades. It's quite another to beat it every single day. Second, I don't think you are really asking about identically zero risk, unless you want to hedge against the zombie apocalypse. You will need to better quantify what you mean in order to get a good answer.

 

[russ_watters]

I know that getting a high paying job and constant promotions will help me stay ahead of the curve. But what about the money that is already saved? Time will age that money's value to the point of feebleness.

So the intent of the question is about preserving the value of what is currently accumulated.

I'm already saving in excess of what I need. Now, how do I keep that savings in a risk free manner? Time is the silent killer of cash. I need to somehow save those savings. I can add to the pot by saving more, but every dollar will weaken with time. Thats disconcerting.

Saving for what purpose/over what length of time?

Do you consider not having enough savings itself to be a risk? Whether by loss of principle or insufficient growth?

 

[BWV]

Again, the answer to the simple question of ‘is there safe investment that beats inflation?’ Is Yes - Treasury Inflation Protected Securities
(TIPS)

These are US gov bonds that pay a smaller yield (currently about 80 basis points on a ten year maturity) but the principle/face amount increases each year by CPI. Held to maturity, the bond would return the purchased yield plus inflation.

Vanguard has low cost index funds that only buy TIPS or they can be bought directly

Other countries issue similar securities

 

[Vanadium 50]

One thing about TIPS is their durations: I believe it's 5, 10 and 30 years. If the OP is worried about a very short time scale, this won't help. If he's worried about a very long time scale, I don't believe there is any 30 year window where TIPS outperformed a broad index of stocks. (I would have to do more research to be 100% sure)

 

[BWV]

One thing about TIPS is their durations: I believe it's 5, 10 and 30 years. If the OP is worried about a very short time scale, this won't help. If he's worried about a very long time scale, I don't believe there is any 30 year window where TIPS outperformed a broad index of stocks. (I would have to do more research to be 100% sure)

You can buy TIPS in most any maturity

TIPS only began trading in the US in the late 90s so they have not hit a 30 year anniversary

There were 10 year periods in the 70s and 2000s where stocks had negative real returns

But agree that they are not the best choice for a young adult saving for retirement

 

[russ_watters]

Given that we don't have the details of the OP's scenario, I have one:

I'm on my HOA board and we have a capital reserve fund. I believe at one time we had some invested in a CD, but right now the bulk is in a money market and the rest accumulates in a checking account before being transferred. Obviously we are losing money to inflation.

I have in the past argued we should invest it with a goal of generating a positive but safe return, but but was shot down. I may try again this year...

Thoughts on how best to relatively safely invest? TIPS fund the easy answer?

 

[phyzguy]

Are there any non risky ways of beating the inflation rate( 2% annually I think)? I'm all for saving, but the fact that cash loses value frightens me. Investing is also risky too. Are there any non volatile, surefire way to beat inflation?

You need to get the "risk-free" idea out of your mind. All life entails some risk. Getting high returns requires taking some risk. You can reduce the risk, but you can never eliminate it. I suggest you consider two options: (1) A diversified portfolio of stocks, and (2) Real estate. Many people like investing in real estate because you are buying something tangible. Buying rental property has been a historically low-risk way to generate high returns.

 

[Vanadium 50]

TIPS only began trading in the US in the late 90s so they have not hit a 30 year anniversary

Yes, but one can also apply the same formula going backwards.

I don't want to come out as negative on TIPS. I own some myself. (Not all that much - around $9K or so) But whether this a good idea or not is a strong function of when you need the money.

 

[Vanadium 50]

I'm on my HOA board and we have a capital reserve fund.

When do you think you need to spend the money? Is it more an emergency fund (where liquidity is important) or more a planned improvement fund (we will need a new swimming pool in ten years)

 

[russ_watters]

When do you think you need to spend the money? Is it more an emergency fund (where liquidity is important) or more a planned improvement fund (we will need a new swimming pool in ten years)

Both, so by default liquidity is important.
https://blog.hignell.com/hoa-manage...Should-Use-the-Reserve-Fund-vs-Operating-Fund

 

[BWV]

Yes, but one can also apply the same formula going backwards.

not really - you could back out historical inflation rates from Treasury yields but that does not really give expected inflation the way that TIPS yields do. TIPS yields have ranged from negative to nearly 400 BPS since they were released, so its difficult to hypothesize what they would have been in the past. Historical average real returns from gov bonds have been around 2% which is probably as good a number as any to use.

 

[StoneTemplePython]

Yes, there is a government guaranteed way to beat inflation, today you can beat it by 86 bps per year for ten years:

https://www.treasury.gov/resource-c...rest-rates/Pages/TextView.aspx?data=realyield

As far as literal answers to OP go, this is the right one. It should also at minimum be a benchmark /stalking horse, which highlights that the question

Are there any non risky ways of beating the inflation rate( 2% annually I think)

is unreasonable in the current market.
- - - -

one major clarification: The numbers being quoted are pre-tax. For a simple illustration: if you have 1 year tenor and we have a bad year with say 10% inflation (comes out of no where of course), you get the spread + inflation adjustment. But if you hold these in a regular (i.e. not tax advantaged) account, Uncle Sam will want his take of 20- 40%... so net of taxes you did worse than inflation.

 

[BWV]

This might be of interest - German stocks did well relative to inflation during the German hyperinflation of the 1920s

https://www.businessinsider.com/her...ocks-during-the-german-hyperinflation-2011-11

 

[Vanadium 50]

If you need liquidity, you probably won't do much better than your money market. They are running about 2.2%, and the core inflation rate for 2018 is 1.9%. You can do maybe 50 basis points better with staggered CDs or treasuries, but it's still not a lot of money, especially if you need to pay someone to keep track of it.

 

[BWV]

If you need liquidity, you probably won't do much better than your money market. They are running about 2.2%, and the core inflation rate for 2018 is 1.9%. You can do maybe 50 basis points better with staggered CDs or treasuries, but it's still not a lot of money, especially if you need to pay someone to keep track of it.

Slight correction: 1.9% was headline and core was 2.2% (core excludes food and energy)

https://www.bls.gov/news.release/cpi.nr0.htm

 

[Vanadium 50]

Thanks for the correction.

 

[FallenApple]

If you need liquidity, you probably won't do much better than your money market. They are running about 2.2%, and the core inflation rate for 2018 is 1.9%. You can do maybe 50 basis points better with staggered CDs or treasuries, but it's still not a lot of money, especially if you need to pay someone to keep track of it.

Thanks, I'll look into it. Yes liquidity is very important. 2.2% offers the protection needed. If it's expected return and volatility is low enough, I might even put some of my emergency funds there.

I wonder how much saving is needed before I can be relaxed about non liquid investments. I already have more than the 6 months minimum needed to stave off multiple emergencies; that I intend to keep very liquid and will not access unless in the most dire of situations.

I'm thinking about splitting half of the excess( beyond the emergency fund) into long term hard to access funds that are very safe and has high return of interest, and the other remaining half into more speculative high risk high reward ventures. I figure that so long as my emergency fund guarantees me safety, I face no real risk since that other half( quarter of net) of my excess would bolster my emergency funds to protect against inflation.

Ultimately, I'm trying to get to the point where I can fail multiple times without it becoming hazardous.

 

[russ_watters]

I wonder how much saving is needed before I can be relaxed about non liquid investments. I already have more than the 6 months minimum needed to stave off multiple emergencies; that I intend to keep very liquid and will not access unless in the most dire of situations.

We've discussed this in several previous threads, but I'll say again that I'm just not a believer in the idea that one needs a significant amount of completely liquid savings. I try to evaluate this by thinking of potential emergencies and how I would respond financially. I just can't think of one that would require 6 months (or alternately, more than $10k) of completely liquid savings.

Most of the reason for that is that I keep most of my invested money in stock-invested mutual funds, and that money is accessible in a week - faster than my gap between paychecks. Anything less than about $20k I can float on a credit card (or 3) for the week or two it takes to access that money. And I have trouble coming up with immediate emergencies that would cost more than a few thousand dollars. That includes things like a major car repair and my health insurance deductable.

The biggest financial risk is probably loss of my job for an indeterminate amount of time. But again, that's not an instant need, that's a monthly withdrawal from long term savings.

I don't have any personal savings that is fully tied up in something like a CD or bond. It's all in the stock market or bond funds, minus whatever has accumulated in my checking account until I transfer it to a fund.

...funds that are very safe and has high return of interest...

These are opposing forces.

 

[FallenApple]

We've discussed this in several previous threads, but I'll say again that I'm just not a believer in the idea that one needs a significant amount of completely liquid savings. I try to evaluate this by thinking of potential emergencies and how I would respond financially. I just can't think of one that would require 6 months (or alternately, more than $10k) of completely liquid savings.

Most of the reason for that is that I keep most of my invested money in stock-invested mutual funds, and that money is accessible in a week - faster than my gap between paychecks. Anything less than about $20k I can float on a credit card (or 3) for the week or two it takes to access that money. And I have trouble coming up with immediate emergencies that would cost more than a few thousand dollars. That includes things like a major car repair and my health insurance deductable.

The biggest financial risk is probably loss of my job for an indeterminate amount of time. But again, that's not an instant need, that's a monthly withdrawal from long term savings.

I don't have any personal savings that is fully tied up in something like a CD or bond. It's all in the stock market or bond funds, minus whatever has accumulated in my checking account until I transfer it to a fund.These are opposing forces.

I can think of a situation that can easily cost in the ballpark of 10k or even more. If suddenly I get a stroke and become mentally disabled such that working would be very difficult, then finding another job and keeping it would be a struggle, even if its a basic burger flipping job.

Also, if a huge recession hits, well that has a good chance of job loss and difficulty of reemployment making that 10k come in handy. Using a credit card in a severe economic crisis runs the risk of default since one doesn't want to be focused on paying back money they owe when one barely recovers from the crisis.

Aren't plummeting stocks values and job losses correlated? If a huge recession occurs and one loses their job, they shouldn't expect their stocks to save them.

I think one should throw an ounce or two of gold on top of that 10k liquid emergency fund in case of economic collapse, however improbable it is.Anything north of 100k? e.g the sudden slap on of a medical debt due an emergency surgery, well, I would just leave the country at that point. And for that need to deal with relocation costs, which is what the emergency fund is for.I think the 6 months minimum is more or less just for the most dire of situations. The probability of me needing the entire fund at once is not high. But it helps me sleep at night.

 

[Vanadium 50]

I just can't think of one that would require 6 months (or alternately, more than $10k) of completely liquid savings.

The point of liquidity in this case isn't so much that you can write a check right this instant. It's that you don't need to sell assets at the bottom of the market if you need money Right This Second. Cash is one way to do this. As you point out, lines of credit are another.

BTW, with resepct to the HOA. Overall inflation is probably not the relevant number, since the HOA is probably not buying the same basket of goods as "the typical family". If you need to buy labor in NYC and they get the proposed $33/hour minimum wage, the cost to repave the parking lot for the swimming pool just doubled. And no investment will protect you from a factor of two.

 

[russ_watters]

I can think of a situation that can easily cost in the ballpark of 10k or even more. If suddenly I get a stroke and become mentally disabled such that working would be very difficult, then finding another job and keeping it would be a struggle, even if its a basic burger flipping job.

You're missing my point: the issue was time, more than money. I'm not sure how you would plan for replacing your lifetime earnings beyond insurance, but my point was that money doesn't need to be liquid.

Aren't plummeting stocks values and job losses correlated? If a huge recession occurs and one loses their job, they shouldn't expect their stocks to save them.

They are. But you lose more from the missed gains than from the stock market drop. That's the big fallacy people afraid of the stock market usually have; overstating loss potential by not considering the gains. The gains are the whole reason to invest!

I think one should throw an ounce or two of gold on top of that 10k liquid emergency fund in case of economic collapse, however improbable it is.

I've heard this one a lot too. An ounce of gold (or worse, a bar of gold) is totally worthless in case of total collapse. You're better off with a paid off house, a solar panel and a gun. Those things have intrinsic value whereas gold doesn't.

Anything north of 100k? e.g the sudden slap on of a medical debt due an emergency surgery,

Don't you have insurance for that? If you don't, you should; it's better than trying to self-insure for that.

Also, again, that money doesn't need to be especially liquid.

I think the 6 months minimum is more or less just for the most dire of situations. The probability of me needing the entire fund at once is not high. But it helps me sleep at night.

Fair enough. What helps me sleep at night is compounding growth, but to each his own. It's tough to provide help for a non-standard and non-rational request though.

 

[russ_watters]

The point of liquidity in this case isn't so much that you can write a check right this instant. It's that you don't need to sell assets at the bottom of the market if you need money Right This Second. Cash is one way to do this. As you point out, lines of credit are another.

Granted. But this just doesn't seem to me to be that big of a risk, unless someone has so volatile of a job situation that they expect to need it every 10 years or even more frequently, and always at exactly the worst time.

I don't know; 7% of a 40 year career is about 3 years of unemployment. But that feels high. People who are responsible enough to plan and have savings also tend to have pretty stable jobs.

Also, I think people need to be willing to take a temporary lifestyle hit in an "emergency".

...which also leads me to want to point out that I think the word "emergency" is often overused/overstated. Losing your job is an emergency. A $2,000 car repair should not be. A $2,000 car repair is a common problem everyone should be able to handle with little or no issue. A "rainy day fund", perhaps. An "emergency", on the other hand, justifies emergency action like taking a loss on a retirement fund to deal with it.

[edit]
Part of my distaste for the "replace six months of income" fund is a matter of values; I think it is a bad stance to bet against your own success. I'm not exactly a risk taker, but I feel that if I'm expecting to get fired periodically I'm probably not trying hard enough.

 

[FallenApple]

You're missing my point: the issue was time, more than money. I'm not sure how you would plan for replacing your lifetime earnings beyond insurance, but my point was that money doesn't need to be liquid.

I plan on investing, even willing to do high risk and high return investing. Even starting a business is a gamble, though a well calculated one. So long as it doesn't touch that 6 month fund.

They are. But you lose more from the missed gains than from the stock market drop. That's the big fallacy people afraid of the stock market usually have; overstating loss potential by not considering the gains. The gains are the whole reason to invest!

But if you don't have a good emergency fund, might have no choice but to sell them at low prices just to prevent starvation.

I've heard this one a lot too. An ounce of gold (or worse, a bar of gold) is totally worthless in case of total collapse. You're better off with a paid off house, a solar panel and a gun. Those things have intrinsic value whereas gold doesn't.

In a semi collapse, I think gold would still be useful since the dollar would be worthless. In a total collapse, then I'm not sure what would happen, but you better hope that gun is big enough to fend off the raiding local warlords. It's better to have a powerful car or military vehicle and be a vagabond in that case.

Fair enough. What helps me sleep at night is compounding growth, but to each his own. It's tough to provide help for a non-standard and non-rational request though.

I wouldn't say its irrational. I've been in a situation where I didn't have sufficient emergency funds. Gave me nightmares. Never again.

 

[russ_watters]

But if you don't have a good emergency fund, might have no choice but to sell them at low prices just to prevent starvation.

Right, but "low" relative to what? Low realative to yesterday or 10 years ago? If low relative to yesterday is half and the stock market doubled in the past 10 years, what's half of double? How much did you really lose?

In a semi collapse, I think gold would still be useful since the dollar would be worthless. In a total collapse, then I'm not sure what would happen, but you better hope that gun is big enough to fend off the raiding local warlords. It's better to have a powerful car or military vehicle and be a vagabond in that case.

I think you're trying to force a differentiation that doesn't exist. If the dollar is "worthless", that is total collapse. That's Walking Dead zombie apocalypse territory.

So who is going to buy your gold, for what? If you have an ounce of gold, another guy has a spare 100gal of gas and another has a spare 1000lb of rice, I don't think you're getting any rice or gas; they are trading with each other.

I guess gold could be worthwhile in a "reset" situation, where the economy collapses and then comes back. I think I'd still rather have a house.

I wouldn't say its irrational. I've been in a situation where I didn't have sufficient emergency funds. Gave me nightmares. Never again.

Nightmares are not rational, but I don't have any way to evaluate whatever your situation and response were.

 

[symbolipoint]

Notice russ_waters description of people having goods who can trade with each other:

So who is going to buy your gold, for what? If you have an ounce of gold, another guy has a spare 100gal of gas and another has a spare 1000lb of rice, I don't think you're getting any rice or gas; they are trading with each other.

That is like what was mentioned earlier; to invest in oneself, so one will have skills or goods or services to trade for what one wants or needs. Then people with these things to offer can trade with each other.

The sense of the topic discussion seems to be more about how to save and how or what to invest than of how to create value in oneself to offer it for trade.

 

[FallenApple]

Right, but "low" relative to what? Low realative to yesterday or 10 years ago? If low relative to yesterday is half and the stock market doubled in the past 10 years, what's half of double? How much did you really lose?

I see your point. If you were in it in the long run, then surely you made enough such that you wouldn't have a pressing need for an emergency fund. Stable stocks grow slowly. For a person without any investments, they probably want to set up an emergency fund first.

I think you're trying to force a differentiation that doesn't exist. If the dollar is "worthless", that is total collapse. That's Walking Dead zombie apocalypse territory.

So who is going to buy your gold, for what? If you have an ounce of gold, another guy has a spare 100gal of gas and another has a spare 1000lb of rice, I don't think you're getting any rice or gas; they are trading with each other.

I guess gold could be worthwhile in a "reset" situation, where the economy collapses and then comes back. I think I'd still rather have a house.

I'd imagine that a house wouldn't be worth anything in a society that has collapsed and most likely war torn as a result. In that case, of course the value of gold would skyrocket since everyone would be trying to escape the country. There would be huge demand since gold would effectively allow people to start a new life in another country. It's very likely that people who escaped Venezuela that had gold were much better off than all the other refugees that had worthless barrels of paper.

 

[PeterDonis]

Are there any non risky ways of beating the inflation rate( 2% annually I think)?

Not "non-risky" ones, no. There are reasonably prudent ways of investing your savings to maintain and increase their value, which other posters have been talking about. But "reasonably prudent" is not the same as "non-risky". There is no way to avoid risk.

 

[StoneTemplePython]

I'd imagine that a house wouldn't be worth anything in a society that has collapsed and most likely war torn as a result. In that case, of course the value of gold would skyrocket since everyone would be trying to escape the country. There would be huge demand since gold would effectively allow people to start a new life in another country. It's very likely that people who escaped Venezuela that had gold were much better off than all the other refugees that had worthless barrels of paper.

Barton Biggs has written some decent books on topics like this... for a war torn region (and there were many in the 20th century), it's smuggling diamonds outside of the country. It's hard to take much gold out because it's relatively big so much harder to conceal, hence much more likely to run into problems with customs, soldiers, militias, etc.

Before you worry about catastrophes you may want to learn basic blocking and tackling of personal investing, including up to the point of where you can answer your original question here.

And with respect to Venezuela, it's hard to predict how things will turn out, but rather than just "imagining" things (i.e. relying on an untrained intuition), you'd be wise to read on the topic starting with, say, this article from mid last year:

https://www.economist.com/finance-a...hat-venezuelan-savers-can-teach-everyone-else