What are the worst investments during inflation?

by | Mar 16, 2023 | Asset Management, Podcasts

What are the worst investments during inflation?  The answer may surprise you.  In our podcast this week, episode 434, Tim and Tom discuss how there has been a rush to create and bring to the market many inflation-related products on Wall Street.  Wall Street tends to capitalize on cranking out products tied to the new “hot investment theme” of the day.  Since 2021, nearly 20 inflation-protection funds have been launched.  Many of these gimmicky products have been exchange-traded funds (ETF’s).

The “new hot product,” in this case, the newly created inflation-protected funds, could be the worst investments during inflation.

It is worth noting the Bloomberg TIPs Index declined 12% in the past year, the worst performance in the 25-year history of the index.  This is during a period where we have seen higher inflation than any time since the index was created.  Other investments, like the Vanguard short-term TIPS exchange traded fund, fell 4.3% over the past year.   These products struggle to perform as advertised.

Tom and Tim also discussed a previous period in the market (1990) and how inflation reached 5% that year.  Alan Greenspan and the Federal Reserve raised short term interest rates high enough to limit inflation.  But these rate hikes pushed the economy into a recession in late 1990 and into 1991.  This discussion led to a bigger chat between the guys to ask, “Where is the recession everyone has predicted?”  The take-away: the longer you are in the investing universe, you realize that what is taught in textbooks doesn’t often work in real life.

Please enjoy Episode 434, “What are the worst investments during inflation?” and approximately 31 minutes of listening enjoyment!

What are the Worst Investments During Inflation? – Mullooly Asset Podcast

Timestamps:
 2:25   A deluge of new products rushed to markets based on the new hot investing theme
6:55   These complicated investments have a short window of time where they work
9:57   The Bloomberg TIPS Index
13:33  The recession in 1991
15:01  Allocating investments during inflation
18:25  Why is the recession always “six months away?”
23:30  Recessions begin regionally, then spread nationally
26:40  Moving the goal posts

Links:
Garzarelli Fund and tax issues (5:28)
Inflation-Protection Funds Struggle To Perform: WSJ
Why the Recession is Always Six Months Away: WSJ

READ the transcript of this podcast here!

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