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Comment by rmrm | Hacker News Reader

In a world where inflation is going to go up, what should one invest in?

People will often say gold. Which I guess is a proxy for any fixed supply asset. But weve seen price inflation in many things other than gold, such as houses and land, art, stock prices. Most things of lasting value ie not consumables. Does a precious metal have some other special qualities that make it behave poorly relative to other limited valuable assests, and then well?

What say you HN? Whats the play to protect ones assets? Or does one just need to avoid cash and bonds?

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... if I mention that very obvious deflationary fixed supply asset I will get downvoted into oblivion on Hacker News.

there seem to be a lot of variants of them, for having a fixed supply :)

I think its inflationary actually (beyond the current speculation).

Consider that the miners will always produce a selling pressure on cryptocurrency (because equipment+electricity+labor costs), it stands to reason that cryptocurrencies will always have more sellers than buyers (again no new speculatary buyers for store of value, just pure currency as it was intended initially). This constant selling pressure will add inflation (increasing supply, decreasing price) to Bitcoin. Actually, once a stable price is reached for a long enough time, this constant inflation should make it a viable currency, and unsuitable as a store of value.

Unless the majority of miners agree, there will never be mined more than 21 million btc, and we already know that a none trivial fraction of those coins sit in wallets that no one controls, and thus are completely out of the market.

Fixed rate debt. If you have an income that will keep pace with inflation and you have low-cost debt, like a mortgage, you get to pay off the "dollar amount" of that debt using the inflated funny money.

Agree, that is potentially a very good one. We have that covered so far as a hefty California mortgage.

It would be nice if there were other avenues to take on low fixed rate debt, I suppose.

From what I've read, gold and other PM generally perform inversely to real interest rates (vs nominal FED rates). This somewhat makes sense, as gold has a carrying cost (storage, security, etc.) and earns no interest, whereas when real interest rates are high, the money will produce better yield in bonds and similar investments.

In a situation of runaway inflation, nominal interest rates are insane also (I've seen double-digit percentages per month in one hyperinflation event in a country I visited), but the real inflation is likely even faster, making real interest negative.

Precious metal, if held in physical form, has the unique property of being no-one's obligation. Additionally, it is by definition a bearer "instrument" and easily transportable, therefore suitable for mitigating political risk. This is why it performs well in times of crisis.

There is no one-size-fits-all answer to your second and further questions. Too much depends on individual circumstances, risk appetite and time horizon.

Your ending hints at my problem with inflation discussion and I suppose economic projections and asset price projections in general based on some macroeconomic fact.

One would assume based on the casual and confident nature in which people talk about them, that rising inflation should result in X. But if being honest they will also include "ignoring second order effects", which can mitigate or completely reverse the expected outcome. The complexity is monumental.

I believe one could say rising interest rates should reduce the value of existing fixed rate bonds denominated in the same currency. Im not sure a lot else can be said, with confidence. Much else is paradox.

Investing in the total market: vtsax because yes it will crash, but it will also recover.

if you assume markets price inflation expectations efficiently, the answer is invest in just about anything with a market price or interest rate.

Even bonds. Bonds are just the price of money in the future. If the market expects inflation then bond prices will drop accordingly to match it. Just don't stuff money under your mattress or keep it all in a checking account.

I guess bonds, if inflation expectations are constant, as they will drop if expectations rise as you say. Avoiding bonds would be a mechanism to avoid rising expectations.

So I think this is technically correct, if things are static, but does not protect against rising rates, which I guess it my question.

Bonds are priced according to the market's best expectations of how much inflation there will be.

If there is more inflation than the market expects than you will lose money. But, are you smarter than the market?

Otherwise, if you only care about avoiding inflation just buy anything that is not a direct cash equivalent. Gold, iron, rocks, stocks, vespene gas, whatever.

Interest rates fell for what, 40 years, creating the great bond bull market? Things can tend to trend, not happen all at once and discretely. Maybe that means the market was horribly horribly wrong for 40 years, I dont know.

Get a mortgage (or otherwise use dollar debt.) The dollars that you owe will shrink.

But if interest rates keep going up, it could depress housing prices (or at least stunt it relative to inflation).

Fixed-rate mortgages aren't common everywhere.

A diversified portfolio.

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