{"id":202532,"date":"2021-03-15T16:01:00","date_gmt":"2021-03-15T13:01:00","guid":{"rendered":"https:\/\/en.buradabiliyorum.com\/opinion-a-worry-for-retirees-inflation-forecasts-hit-8-year-high\/"},"modified":"2021-03-15T16:01:00","modified_gmt":"2021-03-15T13:01:00","slug":"opinion-a-worry-for-retirees-inflation-forecasts-hit-8-year-high","status":"publish","type":"post","link":"https:\/\/buradabiliyorum.com\/en\/opinion-a-worry-for-retirees-inflation-forecasts-hit-8-year-high\/","title":{"rendered":"#\n  Opinion: A worry for retirees: Inflation forecasts hit 8-year high"},"content":{"rendered":"<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_85 counter-hierarchy ez-toc-counter ez-toc-custom ez-toc-container-direction\">\n<p class=\"ez-toc-title\" style=\"cursor:inherit\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-6a3ae91254938\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #dd3333;color:#dd3333\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #dd3333;color:#dd3333\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-6a3ae91254938\" checked aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/buradabiliyorum.com\/en\/opinion-a-worry-for-retirees-inflation-forecasts-hit-8-year-high\/#Theres_quite_a_lot_to_be_concerned_about\" >There\u2019s quite a lot to be concerned about<\/a><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><ul class='ez-toc-list-level-4' ><li class='ez-toc-heading-level-4'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/buradabiliyorum.com\/en\/opinion-a-worry-for-retirees-inflation-forecasts-hit-8-year-high\/#Brett_Arends\" >Brett Arends<\/a><\/li><\/ul><\/li><\/ul><\/li><\/ul><\/nav><\/div>\n<p>&#8220;<strong>#<br \/>\n  Opinion: A worry for retirees: Inflation forecasts hit 8-year high<br \/>\n<\/strong>&#8221;<\/p>\n<h2 class=\"article__subhead\" itemprop=\"alternativeHeadline\"><span class=\"ez-toc-section\" id=\"Theres_quite_a_lot_to_be_concerned_about\"><\/span>\n  There\u2019s quite a lot to be concerned about<br \/>\n<span class=\"ez-toc-section-end\"><\/span><\/h2>\n<p><\/p>\n<div class=\"column column--full article__content\">\n<div id=\"js-article__body\" class=\"article__body article-wrap at16-col16 barrons-article-wrap\" itemprop=\"articleBody\" data-sbid=\"WP-MKTW-0000198453\">\n<div class=\"barrons-article-ad-wrapper\">\n<div data-track=\"barrons-article-ad-wrap\" class=\"barrons-article-ad sticky_item\">\n<div class=\"barrons-main-article-ad-target sticky_target body_ad\" aria-hidden=\"true\"><\/div>\n<\/p><\/div>\n<\/p><\/div>\n<p>       Nobody suffers more from high inflation than retirees. Back in the 1970s, it was those in retirement living on fixed income that got hit the hardest as prices rose year after year. The investment returns from their bonds and cash fell way behind. Bonds were ruefully described as \u201ccertificates of confiscation.\u201d Every year retirees got poorer. \u00a0<\/p>\n<p> Could this h<a href=\"https:\/\/buradabiliyorum.com\/en\/category\/download-scripts-themes-apps\/\" data-internallinksmanager029f6b8e52c=\"9\" title=\"Download Scripts &amp; Themes &amp; Apps\" target=\"_blank\" rel=\"noopener\">app<\/a>en again? Many strategists on Wall Street say no. There is so much slack in the economy, they argue, that there\u2019s little to worry about. And things like fast <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/technology\/\" data-internallinksmanager029f6b8e52c=\"4\" title=\"Technology\" target=\"_blank\" rel=\"noopener\">technology<\/a> advances, which\u00a0make\u00a0businesses more efficient and <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/general\/\" data-internallinksmanager029f6b8e52c=\"3\" title=\"General\" target=\"_blank\" rel=\"noopener\">general<\/a>ly\u00a0cap\u00a0prices and wages, will keep prices tame, they say.<\/p>\n<div class=\"paywall\">\n       Admittedly, when they sound like this they make me think of <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.youtube.com\/watch?v=aKnX5wci404\" class=\"icon none\">Leslie Nielsen in \u201cNaked Gun\u201d, standing in front of an exploding fireworks store shouting \u201cnothing to see here! Please disperse!\u201d<\/a><\/p>\n<p>And not everyone is convinced. The bond market, for one. Five months ago, just before the elections, the bond market was predicting inflation over the next 10 years of 1.6%.<\/p>\n<p>Today: 2.3%.\u00a0<\/p>\n<p>It may not sound like much in real terms. It\u2019s still lower than the historic average. But it\u2019s a 40% rise in a short time and it\u2019s the highest since 2013.<\/p>\n<p>It means someone holding their money in a five-year CD, or even a 10-year Treasury note, will actually lose purchasing power year after year.<\/p>\n<p>So far, there is no reason to panic. At least yet. But there\u00a0is a lot of ground to worry.<\/p>\n<p>The problem with inflation isn\u2019t that it\u2019s certain, or even probable.<\/p>\n<p>It\u2019s that it\u2019s so dangerous. Especially to people in retirement.<\/p>\n<div id=\"cx-membership-tile\"><\/div>\n<p>The Wall Street scribblers dismissing the risks\u2014and for that matter the Federal Reserve governors and politicians doing the same\u2014aren\u2019t retired and trying to live on a safe and stable portfolio with lots of bonds and cash.<\/p>\n<p>What can you do?<\/p>\n<p>The honest answer\u2014which no one on the Street will admit\u2014is that nobody really knows. There is a lively academic debate about what investments, if any, will really protect against runaway inflation. Over the years I\u2019ve asked some of the smartest investment managers I know, and they have said there is no clear answer. The problem with all historic data is that it\u2019s situational.<\/p>\n<p>For example, take gold. This is often described as an \u201cinflation hedge.\u201d But there\u2019s no solid evidence for that. Gold happened to boom during the 1970s, when inflation also rocketed. But that may be coincidence instead of cause and effect. The 1970s was also when the federal government first freed up the gold market, after controlling and capping the price for decades. The gold price hadn\u2019t been allowed to rise since 1933. So it may have just had a lot of catching up to do.<\/p>\n<p>Inflation is calculated using the official Consumer Price Index, as measured by the federal government. It\u2019s based on a basket of goods. As you\u2019d expect, nowhere in the CPI calculations does the government measure gold or precious metal prices as part of that basket.<\/p>\n<p>Yes, there are researchers who argue gold <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.amazon.com\/Golden-Constant-American-Experience-1560-2007\/dp\/1847202616\" class=\"icon none\">has kept its value in purchasing power terms for thousands of years<\/a>. Maybe they\u2019re right. But maybe that\u2019s not relevant any more. The economy is totally different from what it used to be. Oh, and it may <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=2639284\" class=\"icon none\">also be overpriced<\/a>. <\/p>\n<p>In the modern age, gold rose much faster than consumer prices in the 1970s. But it lost you purchasing power, big time, in the 1980s and 1990s. It boomed in the 2000s and collapsed in the 2010s. Inflation protection? Could\u2019ve fooled me. I ran a simple regression analysis. Since 1973, annual changes in the gold price have had a 52% correlation with annual changes in consumer prices. It\u2019s like buying fire insurance that makes you flip a coin, after your house burns down, to see if it will pay out.<\/p>\n<p>This has nothing to do with whether or not gold is a good speculation, merely whether it proves reliable inflation insurance for people who need it.<\/p>\n<p>With some disbelief, I am now reading people online <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.bloomberg.com\/news\/videos\/2020-12-18\/bitcoin-is-the-retail-inflation-hedge-goldman-s-currie-says-video?sref=3REHEaVI\" class=\"icon none\">who are seriously arguing<\/a> that bitcoin is offering inflation protection. Well, of course it <em>might<\/em>. Technically anything might. Past returns are no guarantee of the future, and so on. (\u201cEconomics,\u201d as the late Vassar economics chair Stephen Rousseas used to tell me, \u201cis very good at predicting the past.\u201d)<\/p>\n<p>But there is no evidence, none, that bitcoin does or will provide inflation protection. It\u2019s only been around for about 12 years \u2014 during which there has been very little inflation.<\/p>\n<p>And even if gold and bitcoin can hedge inflation in theory, their usefulness in practice <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/papers.ssrn.com\/sol3\/papers.cfm?abstract_id=3746997\" class=\"icon none\">will depend on the price you pay<\/a>.<\/p>\n<p>One obvious inflation hedge is, or should be, the product designed to do exactly that: Treasury inflation-protected securities, or TIPS. These are U.S. Treasury bonds whose returns automatically\u00a0adjust\u00a0to reflect changes in the consumer-price index.<\/p>\n<p>The downside of TIPS is that their prices are already at record highs and their real, inflation-adjusted yields at record lows. Those who bought into TIPS bonds during their last boom, in 2011-12, quickly saw their price collapse by about 10%, on average, when inflation worries faded.<\/p>\n<p>TIPS offered a pretty good deal when their real, inflation-adjusted yield was about 2%. But today it\u2019s either zero or negative. At this point it\u2019s expensive insurance. The lowest price risk comes from shorter-term bonds (as usual). But someone buying five-year TIPS bonds is actually locking in a loss of purchasing power of about 1.7% a year between now and 2026. That sounds to me like a pretty lousy deal, at least unless I really am convinced inflation is about to hit.<\/p>\n<p>Read about the best places to retire<\/p>\n<p>Says Joachim Klement, investment strategist at Liberum Capital: \u201cThe only true inflation hedge are TIPS. Unfortunately, the real yield on these investments is extremely unattractive with the 10-year TIPS currently paying a negative 0.66%. This means that investors have to either accept defeat and invest in an asset that reduces real wealth over time, or look for alternatives that can provide indirect protection against inflation but no guaranteed protection.\u201d<\/p>\n<p>He suggests infrastructure investments, including utility stocks, renewable energy supplies and railroad stocks, are attractive right now and could offer good inflation protection.<\/p>\n<p>And here\u2019s something else worth considering. Based not on history or faith but logic and math.<\/p>\n<p>The Consumer Price Index, as mentioned, is calculated by the federal government by looking\u00a0at all\u00a0the input costs that go into the things that you and I buy or pay for in the course of our daily lives.<\/p>\n<p>None of it is based on the price of precious metals (or bitcoin).<\/p>\n<p>But <a rel=\"nofollow noopener\" target=\"_blank\" href=\"https:\/\/www.bls.gov\/cpi\/tables\/relative-importance\/2020.htm\" class=\"icon none\">31% of the CPI is based on just one thing: Our housing costs. And another 40% is based on the price of commodities (including the agricultural products that go into food and drink)<\/a>. That is a massive weighting toward just two economic sectors.<\/p>\n<p>If I\u2019m looking for inflation protection, I\u2019m also going to look at stocks related to housing, such as residential real-estate investment trusts and home builders, and the stocks of natural resource companies that\u00a0produce\u00a0the commodities we consume. It is effectively impossible for the Consumer Price Index to rocket without these doing the same.\u00a0<\/p>\n<p>And, critically for retirees, stocks in these sectors currently pay out higher income than TIPS, Treasury bonds or Certificates of Deposit. Financial research company FactSet says its global index of energy stocks currently sports a dividend yield of 4%, its global index of non-energy mineral stocks \u2014 ie mining stocks \u2014 3.6%, and its index of U.S. real-estate investment trusts 3.5%. The yields on many residential REITs are also around 3.5% to 4%. Meanwhile BAA-rated corporate bonds, the highest-yielding \u201cinvestment grade\u201d bonds you can buy, yield 3.4%. <\/p>\n<p>So these are a type of insurance, if you will, which also pay at least some income. <\/p><\/div>\n<\/div><\/div>\n<p><\/p>\n<div class=\"byline article__byline\">\n<p>      <span>By<\/span><\/p>\n<div class=\"author  hasMenu\" data-scrim='{\"type\":\"author\",\"header\":\"Brett Arends\",\"subhead\":\"The Wall Street Journal\",\"list\":[]}' itemscope itemprop=\"author\" itemtype=\"http:\/\/schema.org\/Person\">\n<h4 itemprop=\"name\"><span class=\"ez-toc-section\" id=\"Brett_Arends\"><\/span>Brett Arends<span class=\"ez-toc-section-end\"><\/span><\/h4>\n<\/p><\/div>\n<\/div>\n<blockquote><p><strong><span style=\"color: #ff6600;\">If you liked the article, do not forget to share it with your friends. Follow us on\u00a0<span style=\"color: #ff0000;\"><a style=\"color: #ff0000;\" href=\"https:\/\/news.google.com\/publications\/CAAqBwgKMLG0nwswvr63Aw\" target=\"_blank\" rel=\"nofollow noopener noreferrer\">Google News<\/a><\/span>\u00a0too, click on the star and choose us from your favorites.<\/span><\/strong><\/p><\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\">For forums sites go to <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/forum.buradabiliyorum.com\/\" target=\"_blank\" rel=\"noopener\">Forum.BuradaBiliyorum.Com<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<blockquote>\n<p style=\"text-align: center;\"><strong>If you want to read more <a href=\"https:\/\/buradabiliyorum.com\/en\/category\/news\/\" data-internallinksmanager029f6b8e52c=\"2\" title=\"News\" target=\"_blank\" rel=\"noopener\">News<\/a> articles, you can visit our <span style=\"color: #ff9900;\"><a style=\"color: #ff9900;\" href=\"https:\/\/en.buradabiliyorum.com\/news\/\" target=\"_blank\" rel=\"noopener\">News category.<\/a><\/span><\/strong><\/p>\n<\/blockquote>\n<p><span style=\"color: black;\"><a style=\"color: #ff9900;\" href=\"http:\/\/www.marketwatch.com\/news\/story.asp?guid=%7B21005575-02D4-D4B5-4572-D307352E65EB%7D&#038;siteid=rss&#038;rss=1\" target=\"_blank\" rel=\"noopener\">Source<\/a><\/span><\/p>\n","protected":false},"excerpt":{"rendered":"<p>&#8220;# Opinion: A worry for retirees: Inflation forecasts hit 8-year high &#8221; There\u2019s quite a lot to be concerned about Nobody suffers more from high inflation than retirees. Back in the 1970s, it was those in retirement living on fixed income that got hit the hardest as prices rose year after year. The investment returns&#8230;<\/p>\n","protected":false},"author":1,"featured_media":202533,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"fifu_image_url":"","fifu_image_alt":"","footnotes":""},"categories":[70897],"tags":[],"class_list":["post-202532","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-news"],"_links":{"self":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/202532","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/comments?post=202532"}],"version-history":[{"count":0,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/posts\/202532\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media\/202533"}],"wp:attachment":[{"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/media?parent=202532"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/categories?post=202532"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/buradabiliyorum.com\/en\/wp-json\/wp\/v2\/tags?post=202532"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}