Gyroscopic Investing

The below is a look at asset classes and returns vs. inflation.  Data came from the Portfoliovisualizer website annual returns. The tables are a bit jacked up but I think can be followed.

Tier 1 is very high inflation with a cut line of 6% and above

Tier 2 is high inflation 3-6%

Tier 1 is the "Fed Zone" of 2-3%

Tier 4 is low inflation of below 2%



9.39% (Avg Inf Rate)
4.55% 1.22% 8.36% 31.10% (Avg Stk, Bnd, Cash, Gold returns during period)
0.48   0.13   0.89     3.31 (Avg Rtn/Avg Inf ratio)

3.84%
15.90% 12.74% 6.09% 4.15%
4.14     3.31       1.58     1.08


2.68%
13.81% 9.17% 3.26% 7.96%
5.15   3.42     1.21     2.97


1.43%
13.26% 10.53% 2.30% 2.78%
9.29     7.38       1.61     1.94




Some observations...

In very high inflation gold performs as advertised and everything else pretty much sucks. Under high inflation, not so much and it is worse than cash. I wasn't expecting that. In the "Fed Zone" gold does just fine again as well as in the low inflation zone. Gold does beat inflation without fail at least on an average basis, but in one regime can lose to cash. Interesting performance this gold stuff has. This is a big well duh, but at least since 1971 we can say gold has preserved purchasing power without fail so long as you can absorb the year to year volatility of the stuff.

Outside the very high inflation zone the standard stocks/bonds mix is clearly the place to be. Also, there were more years in the high inflation zone than any other period.

On the other end bonds pretty much performed as advertised in the low end...but I was surprised at bonds doing quite well under high inflation scenarios. Definitely plan on peeling back the banana peel more on that one. If we go just by the #s I think bond fears are over hyped. If interest rates go up we will lose money in our bond ports, but over a period of say a decade things should be fine.

The other big well duh statement is that at least since 1971 stocks are what grow your portfolio.

Kbg wrote: On the other end bonds pretty much performed as advertised in the low end...but I was surprised at bonds doing quite well under high inflation scenarios. Definitely plan on peeling back the banana peel more on that one. If we go just by the #s I think bond fears are over hyped. If interest rates go up we will lose money in our bond ports, but over a period of say a decade things should be fine.

Interesting, but the data set is way too limited here.  The last bond bear occured from 1940 to 1980.  That's 40-years where bonds lost about 80% in real maximum drawdown at one point compared to a 35-year old bond bull market that is still racing into the ultimate bubble blowoff.  Point here is we have not yet ever seen what happens to a modern bond bubble implosion under a floating exchange rate system in the world's reserve currency.  If we go by other country's experiences, things will only "be fine" if you have gold coins in your cold dead hand.

Yeah, it is hard not to get queasy with LTBs. I still think they will be there as a flight to safety mechanism though and we ought to be able to extract some rebalancing profits as well. If I thought I knew what was going to happen I sure as heck wouldn't be doing a PP. But I personally just don't buy major inflation scenarios as. I believe the fundamental demographics are against it in industrialized countries. I'm not a doom and gloom person by trait but if I pitched into that line of thinking I'm thinking Japan more than Germany. My going in assumption for bonds is the yield.