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Comment by kobalsky | Hacker News Reader

Bumping because I'm really interested in this answer.

For me the obvious answer is, if the fed actions means it's more expensive to borrow now, then lend your money. The question is how and where. Bonds? Which bonds? TIPS don't seem to have a rate that would protect me from inflation.

Gold? There's enough volatility there to lose more than 2 years worth of inflation with a badly timed entry, and I if I have to time my entry I'm trading, and I'm not a trader so I don't like it.

I know mentioning cryptos is sometimes taboo on HN, but if I lived in the US/EU I would convert a some portion of my savings into stablecoins and spread them out into some interest accounts to try to minimize counterparty risk. Their APY is running along inflation for the time being. At least until the dust settles and it's clear where to put your money.

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> TIPS don't seem to have a rate that would protect me from inflation

The TIP yield is a real yield. It's indexed to CPI-U, same as Series I bonds. (TIPs adjust monthly; Series I bonds semiannually.)

> would convert a some portion of my savings into stablecoins

This is probably the worst choice one can make. It's accepting a 0% nominal yield against an unregulated counterparty. A Bank of America savings account is literally a better choice.

This. Also, max put your Series I allocation ($10k/yr/SSN iirc, must be purchased from TreasuryDirect) before bothering with TIPs. If you have kids, the inflation adjustments can be used tax free for educational expenses, which would already make them the best inflation adjusted bond, but on top of that, you can cash it in whenever you want for nominal value rather than selling them on the secondary market, which makes them so much better than TIPs in the scenario where interest rates soar and inflation actually gets beat back (fwiw I don’t think this is as likely as currency devaluation).

Note that the tax-free educational expenses apply only to higher education and have an AGI cut-off, though. Read the fine print!

Ah thanks for the clarification! Have a link to a good explanation of the limitations?

I just poked around the Treasury site. It's a maze of little corridors all alike, but this one has some relevant info: https://www.treasurydirect.gov/indiv/planning/plan_education...

Had a bit of a hard time finding the actual AGI limit, but I found it here: https://www.irs.gov/publications/p970

Unfortunately, not that high:

You may be able to cash in qualified U.S. savings bonds without having to include in your income some or all of the interest earned on the bonds if you meet the following conditions.

- You pay qualified education expenses for yourself, your spouse, or a dependent.

- Your MAGI is less than $98,200 ($154,800 if married filing jointly).

- Your filing status isn't married filing separately.

It’s $10k/yr/EIN, too. So if you perhaps have a family trust or a single-member LLC, disregarded on your taxes as Schedule C, that LLC or Trust can create an “entity account” at TreasuryDirect. It has slightly stricter restrictions than an account for a natural person, but certainly has the ability to purchase and hold and sell Treasuries too, including I Bonds.

I was clearly misunderstanding how TIP yields worked, I'll read more about it. Thanks!

The money illusion got you.

With demurrage currencies, everything works like TIPS. Yields may be negative but they are free from inflation and deflation.

It's kind of weird that people are choosing the money illusion over a negative yield/interest rate. I would rather have no inflation and see that the yield is negative than unpredictable inflation where the yield could be absolutely anything and I simply won't know.

> they are free from inflation and deflation

No systemic measure is free from inflation or deflation in a dynamic market.

Prices move, sometimes in a correlated fashion, and credit waxes and wanes organically. Long-run inflation may be theoretically zero in some systems (constant money supply and magically constant velocity), but in reality, we have never observed this. (Even under commodity money systems with relatively constant money supply.)

> With demurrage currencies, everything works like TIPS. Yields may be negative but they are free from inflation and deflation.

Not at all true of historical demurrage currencies, with are subject to inflation/deflation as normal but also have reduced nominal value over holding time.

ISTR the term has been resurrected for crypto products, but I can't find any details of how any crypto demurrage currencies work that would confirm or deny that they are somehow insulated from inflation/deflation and only change buying power by the demurrage charge, though I can't see it being likely to work in practice.

In theory, you could have what is basically a “stablecoin” managed against a price index like the CPI-U instead of an actual fiat currency and then add a demurrage charge on top of that (which could provide stabilization resources, so it's not completely irrelevant to function).

> > would convert a some portion of my savings into stablecoins

> This is probably the worst choice one can make. It's accepting a 0% nominal yield against an unregulated counterparty. A Bank of America savings account is literally a better choice.

you clipped out half the sentence:

> I would convert a some portion of my savings into stablecoins and spread them out into some interest accounts to try to minimize counterparty risk.

interest accounts. i.e. non-0% nominal yields.

And have credit risk against some untested crypto-startup without FDIC deposit insurance?

yes.

i'm not taking any stance on the risk v yield profile. i was just bothered by JumpCrisscross's mischaracterization of the earlier comment & wanted to correct that.

Aren't stable coins pegged to USD subject to the same inflationary concerns as USD and counterparty risk? You're getting a few extra % return, but aren't the risk adjusted returns the same?

I honestly have the same questions as you though, I feel like if I was 100% sure of big inflation coming, all I'd know I want to do is get out of cash, but I don't know where to put my money. Part of me says Walmart, Dollar stores, and other inelastic merchants, but idk. Physical gold seems ok, but you're right in that if you overpay, you're overpaying for an asset that doesn't return anything.

Bonds prices are going down due to interest rate increases. They traditionally are the hedge against stocks falling. There is no easy answer for this.

Don't make the mistake of increasing your risk appetite to chase perceive erosion of value from inflation. Inflation happen regardless, everyone wishes they could find a 8% risk free investment, they do not exist. If you're not a trader stick to an allocation you're comfortable with. The worst outcome is you try to trade in a bearish market and end up down, while inflation is still going.

Series I Bonds, although you are limited to $10,000 a year.

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