Ask HN: What’s your go-to investment for protecting cash from inflation? | Hacker News Reader

Ask HN: What’s your go-to investment for protecting cash from inflation?

26 pointselamje24 comments

I am curious what investments, and why, you all invest in to mitigate cash depreciation. Bonds, CD’s, etc.

Treasury Inflation-Protected Securities, often called TIPS?

https://www.treasurydirect.gov/indiv/products/prod_tips_glan...

I don't know... I have the feeling that the inflation rate calculated in those formulas is much lower than the actual inflation rate experienced by the population, and it's kept artificially low because otherwise many inflation-adjusted entitlements paid by the government would grow out of proportion.

Maybe it's just because I live in California, but over the past 10 years I have observed inflation in my main expense categories (mostly rent and restaurants) go up a steady ~10% a year, which clearly doesn't match what the TIPS have been returning, so had I had all my nest egg in TIPS, my purchasing power would have shrunk by quite a bit.

1) TIPS inflation isn't solely to cover state of California only. It is a nation-wide average.

2) Your main expense categories are just a subset of consumer expenditure that the bureau of labor statistics use to measure price levels of goods and services.[1]

https://www.bls.gov/news.release/pdf/cesan.pdf

To add to this, your personal inflation rate will be larger because the CPI takes into consideration a similar item. So when the economy is good, a kraft dinner is replaced with a steak dinner, when the economy drops, the opposite is done. So you pay not see the inflation rate change in your daily expenses.

I am surprised nobody mentioned index funds. While more risky, investing in diversified (including international) equities for the long term is expected to at least keep up with inflation (minus crazy volatility in the short term) since you are effectively buying businesses whose value of produced goods and services should effectively raise along with inflation, unless major demographic and economic shifts happen (in which case your CDs or bonds would likely be just as screwed).

The answer 100% depends on the time frame. If you only want to beat inflation you probably want the cash in more than 2-3 years but less than 7 years. CDs are probably good. If you're young enough and can tolerate risk then index funds are a better choice if you can take losing money for any random period of time.

Do CDs beat inflation? At times at least, I think they have failed to do so. (My dad called them "certificates of depreciation" for a reason.)

Yeah but not by a whole lot. Inflation last year was 1.8%, this site says 1 year cd gets you about 2.7%. I do remember my dad holding the same opinion so I wouldn't be surprised if thats historically true.

https://www.nerdwallet.com/blog/banking/nerdwallets-best-cd-...

Don't forget taxes. Unless you hold them in a retirement account, interest income is taxed at your marginal rate, so your 2.7% easily becomes ~1.5% or less if you are a relatively high earner at the peak of your career.

Self-managed index fund https://m1.finance/dey0cfo2f

That’s a neat idea

If the goal is to only beat inflation, which most central banks try to keep around 2%, there are many GIC products where the principal is guaranteed and the interest is slightly over the usual inflation rate.

I don't personally use GICs though. If you don't need liquidity in the short term, a balanced portfolio (40% safe, 60% growth) reliably performs much better in the long run.

So is that just a Canadian product something like a CD in the US?

Yes. Didn't realize GIC is a Canadian term only. They're almost exactly like CDs.

Trade options in the stock market. I take losses by holding a lot of cash on the side but the options market pays well.

interested to know what people's opinions are on how interested (i.e. CPI) is calculated today versus how it was calculated pre-1990 http://www.shadowstats.com/alternate_data/inflation-charts

Glancing at the graphs, I thought it was weird his alternate CPI exactly tracks BoL CPI changes. Turns out it’s because he’s just adding a constant. From Wikipedia:

> Shadowstats does not actually recalculate BLS data, rather, the Shadowstats CPI merely adds a constant to the officially reported numbers

This doesn’t inspire much confidence in his alternate CPI.

MIT’s billion prices project is much more novel and interesting. They track prices from online goods in real-time to calculate price inflation. You can see some of the stats posted at https://www.pricestats.com

Stocks for inflation, bonds for deflation.

based on averages over the last 10 years (simple google search), a high-yield savings account (HYSA) or CD should mitigate inflation.

you can find HYSAs now that go as high as 2.45% and 12-month CDs around 2.75%. of course, YMMV. this is not financial advice.

IP addresses

Vanguard's VTSAX long term, VMMXX for short term.

Gold and Silver (or Bitcoin and Litecoin)

Inflation comes from too much money chasing too few goods and services.

So to reduce inflation, the easiest way to remove money from circulation is to buy Federal government bonds.

The other way to reduce inflation is to create new value among the goods and services offered in the private sector. What new product or service can you create?

Half of your answer to beating inflation (2-3%/yr) is to build a startup?

Reply on news.ycombinator.com