Making wealth is important but Protecting wealth is also important.
Hedging is very important when you are investing. As Volatility is markets basic identity, let it be Equity, debt or commodity, Its always there. Using volatility for your good, and hedging against risk is what Investing all about. But Volatility is not the only risk. there are bigger risk exist in the world.
Inflation is one out of it. Inflation is in simple word means general increase in price and fall of purchasing power of money. Keeping your money safe against inflation is very important. Let it be investing or general day to day life. So how to tackle inflation? is gold the right way?
I don’t think so. Because when in past I was writing about gold, I don’t Found any such proofs. you may read my post about gold.
So what are the ways to protect your portfolio against inflation?
Interestingly, Fidelity investment Back-Tested nine assets for keeping your portfolio against inflation and results are sufficient shocking.
Lets see what are they and how they perform in history WITH DISCLOSURE THAT PAST PERFORMANCE IS NOT GUARANTEE IN FUTURE.
9. Gold : Only outperform inflation (CPI) 54%. Not attractive. Still you want to invest in gold, You may use Gold bonds and Gold ETF. ( $GLD )
8. Commodity : No, I am not surprised . During My CFA Days I learn that commodities most time are hedge. As per study of fidelity, 66% successful. ( $GSG )
7. 60/40 Equity / Debt Portfolio : 69% outperform Inflation. Good strategy. But again question is Which stock? Because some stocks like Holding huge pile of debt on balance sheet are useless. Pile of cash and management which is not investing it is also useless. Next Question is What type of debt. Sovereign, Quasi sovereign, Private? Because everyone having different characteristics. What about Correlation of return? what about risk as the movement private debt came into picture, there is some amount of risk attached. There is way for this. In India we have balanced funds and in US If I am not wrong DFA Global Allocation fund is right way to invest. ( $DGSIX )
6. REIT or Real Estate Equity : Also outperform inflation 69%. What are they? I written about the structure and not about specific REITs on my BLOGPOST about Yieldco. In short REITs are companies holding assets like Real Estate, Infrastructure. They are like Mutual funds. Just not holding stocks and Physical assets. Best thing is expense ratio is very low. Though they are not available in India but in us they are available. ( ( $VNQ )
5. Broad Market Equity Index : S&P 500, S&P BSE SENSEX, NIFTY. Interestingly REIT and index are nearly similar. Index outperforming 70%, Breaking the myth that Alternative investment are having negative correlation with equity. Its very easy to invest in Index. Vanguard Funds or S&P 500 are best way in US. In India also we have Index funds. ($SPY )
4. Real Estate Income : Outperformed 71% time CPI. The question is How to invest? In US its not difficult. Market Vectors Mortgage REIT Income ETF. If you have risk capacity or you already have source then you don’t need to search index or managed funds. In india, we dont have such funds. You supposed to invest in Real Estate.
3. Barclays Aggregate bond Index : Formerly known as Lehman bond index. 75% times outperform. Its market capitalization based index meaning the securities included in index are based on their Market capitalization. The index represent nearly all type of securities. Municipal Bonds, Treasury Inflation protected Securities are excluded as tax treatment issue. it include treasury securities, Govt Agency Bonds, Mortgage Backed Securities, Corporate Bonds, Foreign Bonds Traded in US. iShare Core US core Bond ETF track it. In India, we have Debt funds But in such case investors need to check what is rating associated, who is issuer, is liquidity sufficient etc.
2. Leveraged Loans : What are leveraged loans? In short if Bharti Airtel asked loans from you, will you lend them money? In short, lending money to the borrower who is already under considerable amount of debt. High risk High return for the portfolio which is well diversifies. As its clear its not for you.retail investor. But if there is fund available for specifically to it, then yes. In India we dont have such concept. NPA for banks are very large problem. But you may invest in Companies having ARC Business. Namely Edelweiss. In US Powershare Seniour loan ETF is right thing for it. 79% time out performance to CPI but come with sufficient risk.
1. TIPS : Treasury Inflation Protected securities. In India we call them Inflation Index Bond or Capital Index Bond, protecting principal and interest. 80% time out performance for CPI. In US TIP ETF are famous. Many of them track Barclays TIP index.
in India you may buy Guilt securities directly from bank or invest in G-Sec funds. In fact banks like SBI giving real return against Inflation to their Customers investing in fixed deposit product. Very simple to invest an keep in your portfolio
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