Post #100
Part 4: Good Advice, Bad Advice, and News About Investment People (continued)
Scott Burns – Recommendations for beating inflation
Maybe you want to reread post 71 (I talk about inflation). Then check out this article by Scott
Burns. He lays out a portfolio of
Exchange Traded Funds that will combat inflation.
How
to Build a Low-Cost Inflation-Hedged Retirement Portfolio
You could use index funds instead of ETFs to achieve the
same results.
It would be great if you had an advisor, or a friend, or a
mentor, who could accurately tell you when inflation was going to be
higher. Then you could have two
asset allocation models. Use the
one Scott describes in this article when inflation is high. Use your regular asset allocation
portfolio when inflation is low.
Of course, your friend better be right about those inflation calls. Otherwise, you are screwed.
Maybe that’s what Scott’s AssetBuilder website does for
people. Maybe they predict periods
of high inflation so you can switch to this new portfolio. I don’t know.
If you know someone who can predict inflation with 100%
accuracy, then you will be way ahead of everyone else.
Unfortunately, I don’t believe that you or I will ever find
anyone who can predict inflation with 100% accuracy, just as I have never found
anyone who can tell me with 100% accuracy which asset class will outperform the
others in a given year. Some
people can probably do it for a few years, but nobody can do it
consistently. If they could, they
would be more famous than Warren Buffett.
Scott understands this. That’s why he doesn’t tell you that you should switch to
this portfolio. If you read his
words carefully, he is saying that if you are have already decided that
inflation will be high, this is a good portfolio for you. But he is not trying to convince you
that inflation will be high. He is
leaving it up to you to make that decision.
So, will inflation wind up being a lot higher sometime in
the future?
Warren Buffett and others feel that the government’s moves
to battle our current crisis will eventually increase the rate of
inflation. But they haven’t
defined “eventually”.
Here’s an article that says the opposite:
Why
High Inflation Will Not Take Hold
You can do a lot of research and you will find people with
very logical arguments about high inflation, moderate inflation, and low
inflation. In the end, you won’t
know for sure who will be right.
But you will have spent a lot of time trying to figure it out.
In this blog, I’m trying to save you from all that mental
fatigue. My argument is that if
you have a reasonable asset allocation plan and stick with that plan forever,
you will do fine. Plus, you won’t
have to spend zillions of hours researching financial stuff.
Sure, when inflation kicks up, your asset allocation plan
may not be optimal. And when
stagflation hits you, again, the portfolio won’t be optimal. And when the financial world crumbles
around you like it did for the last year and a half, your portfolio won’t be
optimal. But in the long run, you
will meet the market averages, and that’s better than the vast majority of
investors.
That’s our goal.
Market average returns without doing a lot of work. We still end up beating almost everyone
else, because the rest of the world makes tons of investing mistakes.
Scott’s article does make a very valuable point that I have
been harping on. High fund fees
are unnecessary and detrimental to your long term financial health. So stick with index funds and ETFs with
low annual expense ratios.
