Inflation or deflation & your finances

[Scallywag]

Once "this" is over, could we have inflation or deflation? And how will that affect us & our finances?

[bjl584]

All the money rolling off the presses is going to have some effect I'm sure.
But, who knows what.
Economists were warning about inflation coming for the past 10 years, but it never really came.

People are likening this to the Great Depression, but I think it's apples to oranges.
Society, economies, and government are completely different today than they were back then.

[Singuy]

All the money rolling off the presses is going to have some effect I'm sure.
But, who knows what.
Economists were warning about inflation coming for the past 10 years, but it never really came.

People are likening this to the Great Depression, but I think it's apples to oranges.
Society, economies, and government are completely different today than they were back then.

People forget that the Great Depression happened when communication was poor, globalization was some kind of sci-fi fantasy, and the stock market was just a baby. 99% of the people didn't really know what was going on which left people in panic, not knowing anything about supply chain and their latest update. The world is so different and resistance to these kind of things as people will rally together and solve major issues fast. The only enemy to our problems today would be disinformation.

[~bs]

what's happening right now is deflationary. prices for take out, etc are dropping everywhere. car prices, housing, rent, etc. Government is busy pumping money. Eventually we'll be back in "normal" inflation unless the government overdoes things.

[Singuy]

I wouldn't say everything is deflationary. Common household goods and pasta has increased in price. Freakonomics said pasta prices went up like 200% during the pandemic. So it's just an economic shift which is causing an imbalance where one portion of the industry is hit by deflation and the other is hit by inflation.

[disneysteve]

what's happening right now is deflationary. prices for take out, etc are dropping everywhere

Take out prices haven't changed a bit around here. Same prices as always. If anything, prices are effectively up in some places because they haven't been sending out the coupons they normally send. The last ValuPak of coupons we got a week or so ago had zero restaurant coupons. It usually has about 10 or 12.

[Scallywag]

People forget that the Great Depression happened when communication was poor, globalization was some kind of sci-fi fantasy, and the stock market was just a baby. 99% of the people didn't really know what was going on which left people in panic, not knowing anything about supply chain and their latest update. The world is so different and resistance to these kind of things as people will rally together and solve major issues fast. The only enemy to our problems today would be disinformation.

There was a lot less oversight on the stock market in 1929 as the SEC only came into effect later, under Roosevelt. The first head of the SEC, ironically, was Joe Kennedy, the same guy who had engaged in chronic market manipulation & made HUGE profits, in the years & months leading up to the crash (he smartly bailed out in July of 1929, right before it would all unravel). Sort of like putting the fox in charge of the chicken coop but that is why the SEC proved so effective under Kennedy - he knew every trick in the book and was extremely effective at detecting illegal / nefarious traders & trading activities. A lot of the laws regarding "insider trading", "investor pools" etc that we have now simply did not exist back in the 1920s, not to mention the circuit breakers that came into place just fairly recently.

My own perception is that we'll nave a lot of inflation and that scares me as my nest egg is already small (compared to where I'd like it to be) & the possibility that inflation will make it worth even less scares me. I am looking at inflation proof investments - are there any, aside from gold?

[corn18]

Most of the money that is being printed is not going into the economy. The Fed is buying corporate bonds and mortgages. That won’t cause inflation and hasn’t since they started QE after the financial crisis. The Fed now has an $8T+ balance sheet. So they own a LOT of debt. Unfortunately, this does nothing for the economy. All of that debt is being used by corporations to buy back stocks and pay dividends. That keeps their stock prices high. This benefits corporate officers whose total comp is determined by earnings per share and stock price. That's why most corporations aren't investing their cash for growth or paying their employees, they are propping up their stock price. Great for the CEO. Doesn't do squat for anyone who isn't in the market. And the folks with 401k's that own a lot of that stock aren't selling it to spend it. They are holding on to it. So none of this $8T is finding its way into the economy.

This is the dichotomy that has been baffling me for a while until someone helped me understand. The rich get richer and the poor are struggling. What needs to happen is to get that money into the lower middle class and get them to spend it. That will get the economy rolling. Of course, if they spend it all, then they aren't much better off. Ideally, we should get that $8T into their hands, they should save some, spend some and tax some.

So what am I doing about it? Absolutely nothing. My Investment Policy Statement (IPS) doesn't talk about bears and bulls. It sets an Asset Allocation (AA) and tells me when to rebalance. With the bear market, I have drifted from 60/40 to 50/50. New money going in is buying 100% stocks. I'll rebalance at the end of the year to get it back to 60/40. Other than that, I am not changing a damn thing.

I am looking at retiring Apr 2021. The bear effects that, but hasn't eliminated it. If it had, I would have had a bad plan.

So, I'll follow my boglehead signature: Don't do something, just stand there!

[Petunia 100]

There was a lot less oversight on the stock market in 1929 as the SEC only came into effect later, under Roosevelt. The first head of the SEC, ironically, was Joe Kennedy, the same guy who had engaged in chronic market manipulation, leading up to the crash (he wisely bailed out in July of 1929). Sort of like putting the fox in charge or the chicken coop but that is why the SEC proved so effective under Kennedy. A lot of the laws regarding "insider trading", "investor pools" etc simply didn't exist back then, not to menthon the circuit breakers that came into place just fairly recently.

Mt own perception is that we'll nave a lot of inflation and that scares me as my nst egg is already small (compared to where I'd like it to be) & the possibility that inflation will make it worth even less scares me. I am looking at inflation proof investments - are there any, aside from gold?

Real estate is good to own during inflationary periods, especially if it is real estate you are willing to sell. Also, if you have debt, inflation will whittle it down for you.

I do think that all of this "new" money is going to lead to some inflation.

[Scallywag]

Most of the money that is being printed is not going into the economy. The Fed is buying corporate bonds and mortgages. That won’t cause inflation and hasn’t since they started QE after the financial crisis. The Fed now has an $8T+ balance sheet. So they own a LOT of debt. Unfortunately, this does nothing for the economy. All of that debt is being used by corporations to buy back stocks and pay dividends. That keeps their stock prices high. This benefits corporate officers whose total comp is determined by earnings per share and stock price. That's why most corporations aren't investing their cash for growth or paying their employees, they are propping up their stock price. Great for the CEO. Doesn't do squat for anyone who isn't in the market. And the folks with 401k's that own a lot of that stock aren't selling it to spend it. They are holding on to it. So none of this $8T is finding its way into the economy.

This is the dichotomy that has been baffling me for a while until someone helped me understand. The rich get richer and the poor are struggling. What needs to happen is to get that money into the lower middle class and get them to spend it. That will get the economy rolling. Of course, if they spend it all, then they aren't much better off. Ideally, we should get that $8T into their hands, they should save some, spend some and tax some.

So what am I doing about it? Absolutely nothing. My Investment Policy Statement (IPS) doesn't talk about bears and bulls. It sets an Asset Allocation (AA) and tells me when to rebalance. With the bear market, I have drifted from 60/40 to 50/50. New money going in is buying 100% stocks. I'll rebalance at the end of the year to get it back to 60/40. Other than that, I am not changing a damn thing.

I am looking at retiring Apr 2021. The bear effects that, but hasn't eliminated it. If it had, I would have had a bad plan.

So, I'll follow my boglehead signature: Don't do something, just stand there!

Some of the "new" money is actually going back into the "real economy" in the form of stimulus payments to individuals & families and small business loans / PPL.

I certainly expect Inflation to be a problem as larger amounts of cash chases the same amounts of goods & services, including real estate. This will be devastating for someone like me who needs a house but may not be able to afford one as the money in my down payment suddenly isn't enough!

We're still putting money into our retirement accounts but mostly staying cash, although I am weekly dollar cost averaging very small amounts of my favorite stocks.

Real estate is good to own during inflationary periods, especially if it is real estate you are willing to sell. Also, if you have debt, inflation will whittle it down for you.

I do think that all of this "new" money is going to lead to some inflation.

I want to buy a house and thought it would be possible in a couple of years. We're in our mid / late 40s and do not want a house payment in retirement. Unfortunately, that may not be possible now.

[Singuy]

Most of the money that is being printed is not going into the economy. The Fed is buying corporate bonds and mortgages. That won’t cause inflation and hasn’t since they started QE after the financial crisis. The Fed now has an $8T+ balance sheet. So they own a LOT of debt. Unfortunately, this does nothing for the economy. All of that debt is being used by corporations to buy back stocks and pay dividends. That keeps their stock prices high. This benefits corporate officers whose total comp is determined by earnings per share and stock price. That's why most corporations aren't investing their cash for growth or paying their employees, they are propping up their stock price. Great for the CEO. Doesn't do squat for anyone who isn't in the market. And the folks with 401k's that own a lot of that stock aren't selling it to spend it. They are holding on to it. So none of this $8T is finding its way into the economy.

This is the dichotomy that has been baffling me for a while until someone helped me understand. The rich get richer and the poor are struggling. What needs to happen is to get that money into the lower middle class and get them to spend it. That will get the economy rolling. Of course, if they spend it all, then they aren't much better off. Ideally, we should get that $8T into their hands, they should save some, spend some and tax some.

So what am I doing about it? Absolutely nothing. My Investment Policy Statement (IPS) doesn't talk about bears and bulls. It sets an Asset Allocation (AA) and tells me when to rebalance. With the bear market, I have drifted from 60/40 to 50/50. New money going in is buying 100% stocks. I'll rebalance at the end of the year to get it back to 60/40. Other than that, I am not changing a damn thing.

I am looking at retiring Apr 2021. The bear effects that, but hasn't eliminated it. If it had, I would have had a bad plan.

So, I'll follow my boglehead signature: Don't do something, just stand there!

You sure? The market is massively rewarding companies of growth and punishing most dividend paying companies. Ford, one of the highest dividend paying company is dropping like a rock while Tesla is heading to all time high again. Look at all the stocks hitting ATH. Most are not dividend stocks but growth tech stocks.

[corn18]

You sure? The market is massively rewarding companies of growth and punishing most dividend paying companies. Ford, one of the highest dividend paying company is dropping like a rock while Tesla is heading to all time high again. Look at all the stocks hitting ATH. Most are not dividend stocks but growth tech stocks.

I may not have been clear. Value stocks are not rewarded for growth so they are not investing in growth. These are not FAANG stocks.

[Singuy]

Some of the "new" money is actually going back into the "real economy" in the form of stimulus payments to individuals & families and small business loans / PPL.

I certainly expect Inflation to be a problem as larger amounts of cash chases the same amounts of goods & services, including real estate. This will be devastating for someone like me who needs a house but may not be able to afford one as the money in my down payment suddenly isn't enough!

We're still putting money into our retirement accounts but mostly staying cash, although I am weekly dollar cost averaging very small amounts of my favorite stocks.



I want to buy a house and thought it would be possible in a couple of years. We're in our mid / late 40s and do not want a house payment in retirement. Unfortunately, that may not be possible now.

USD is a world currency which means hyperinflation risk is ridiculously low. Many countries own U.S' debt, which means hyperinflation risk is low. There are so many complex things at play which makes USD almost as stable as gold due to these factors. In fact gold is only stable due to sentimental values where it's usefulness as a mean of monetary liquidity is not nearly as great as USD. In fact most people around the world would love to own some USD right about now due to hyperinflation risk of their own currency.

[Singuy]

I may not have been clear. Value stocks are not rewarded for growth so they are not investing in growth. These are not FAANG stocks.

You said stock market is high due to QE which encourages stock buy backs and dividends. Companies that give out dividends and had stock buy back activities are getting punished the most right now.

[corn18]

You said stock market is high due to QE which encourages stock buy backs and dividends. Companies that give out dividends and had stock buy back activities are getting punished the most right now.

Ok...