How are you preparing for coming inflation?

[Lakedweller]

Are you buying gold as a hedge against monetary inflation?
Are you reducing debt at the expense of future investment?
Will global stimulus cause global inflation? If every country is experiencing inflation, will we notice?
This is an excellent forum to discuss how the average family is preparing for the post recession period.

I know I have doubled my mortgage payments and started diverting new investments into gold and gold stocks (while maintaining my existing balanced portfolio of stocks and bonds).
What else are you doing?

[CanadianCapitalist]

Originally Posted by Lakedweller

Are you buying gold as a hedge against monetary inflation?
Are you reducing debt at the expense of future investment?
Will global stimulus cause global inflation? If every country is experiencing inflation, will we notice?

I wrote a couple of posts on this topic. Warren Buffet says there is "potential" for high inflation in the future. Past experience indicates that gold and commodities are a hit-or-miss in terms of an inflation hedge. Equities are an effective long-term hedge. Real estate & commodities might perform well. The only clear loser will be traditional government bonds that currently yield less than 4%. Real return bonds are the almost perfect hedge against inflation but the real yields are typically low.

Investing in a period of high inflation
Investing in an Inflationary World

[FrugalTrader]

Originally Posted by Lakedweller

Are you buying gold as a hedge against monetary inflation?
Are you reducing debt at the expense of future investment?
Will global stimulus cause global inflation? If every country is experiencing inflation, will we notice?
This is an excellent forum to discuss how the average family is preparing for the post recession period.

I know I have doubled my mortgage payments and started diverting new investments into gold and gold stocks (while maintaining my existing balanced portfolio of stocks and bonds).
What else are you doing?

I also have a post coming up next week about this topic, stay tuned!

[Lakedweller]

I'm always waiting with baited breath! Thanks as always.
It has been hard to find good academic knowledge on hyperinflation. I'll pass this on for your late night reading...
http://www.shadowstats.com/article/hyperinflation.pdf
The preceeding is a American report written by a career economist who argues that we are part of a much larger cycle, one that began in 1933, when Roosevelt decoupled from the gold standard. He says that inflationary recession is in place, that the banking solvency crisis has opened the first phase of monetary inflation, and that hyperinflationary depression remains likely as early as 2010. Interestingly, this report was written almost one year ago, with many of his predictions beginning to unfold. I’ll be interested to hear what you guys think. Warning, this is a long, academic read, but well worth the effort.

[mfd]

From an investment perspective I haven't changed anything. When the increased inflation comes I plan to put as much money as I can into bonds when the rates are right.

My primary focus right now has been the same as yours Lakedweller. I want to pay down my mortgage as fast as possible. I've increase my biweekly payments and putting in lump sums. I'm also considering breaking my mortgage and locking in for 10 years. I know variable rates always perform better but I like knowing what my mortgage payment is every month.

[ethos1]

Originally Posted by Lakedweller

Are you buying gold as a hedge against monetary inflation?
Are you reducing debt at the expense of future investment?
Will global stimulus cause global inflation? If every country is experiencing inflation, will we notice?
This is an excellent forum to discuss how the average family is preparing for the post recession period.

Yesterday the US government posted their latest unemployment numbers being at the level they were back in 1983, even though right now we have very low inflation and money for practically zero

In 1983 when I was in my 30's, interest rates were high, mortgage payment ridiculous, we had little money and even lesser investing opportunities like today, as well being from the old school, leveraging was something not often considered.

My advice is to take advantage of the low rates pay off all debt including motgages as fast possible, max on TFSA & RRSP's.

Funny, and I dont have the true meaning to this, but when you have no debt, it is really surprising how the nature and money gods work in your favour.

Less stress, more productivity, better family life along with improved personal health and outlook on life - all that from my own experiences

[Financial Highway]

Although I think inflation will be a big problem in the future, I still think we have sometime to go to get there. Probably one of the best things you can do right now is pay down the mortgage like MFD and lakedeweller mention. With low interest rates most of your money will go towards principle payment and reduce your payments when we get back to high interest rates.

Free money finance had a good guest post on how to deal with inflationary periods.

[seven3]

I agree with the others advice above about paying off the mortgage, etc. I'm also looking into allocating part of the fixed income portion of the RSP to a real return bond etf (XRB)....but haven't looked into the details of how that performs yet.

With the low interest rates, it is tempting to leverage a bit in the short term though....

[Lakedweller]

I wondered whether someone would bring up the concept of inflationary dollars paying off a locked in mortgage faster. I really don't understand the idea, but I'll try and explain it: Some people suggest that inflation makes the amount of dollars you are earning increase while the value of your mortgage is constant, leading you to be able to pay more of it off. This must be assuming the mortgage is locked at a fixed rate for the whole life of the mortgage.
I don't necessarily agree with the idea, because inflation also causes all of your other expenses to eat up your ability to pay your mortgage. But I'd like to hear from a Professional on this.


Which brings me to the next question of all of you. With mortgage rates the way they are, a 10 year mortgage (the life left in my mortgage) rate is under 5.5%. Would you lock in?

[mfd]

Originally Posted by Lakedweller

I wondered whether someone would bring up the concept of inflationary dollars paying off a locked in mortgage faster. I really don't understand the idea, but I'll try and explain it: Some people suggest that inflation makes the amount of dollars you are earning increase while the value of your mortgage is constant, leading you to be able to pay more of it off. This must be assuming the mortgage is locked at a fixed rate for the whole life of the mortgage.
I don't necessarily agree with the idea, because inflation also causes all of your other expenses to eat up your ability to pay your mortgage. But I'd like to hear from a Professional on this.


Which brings me to the next question of all of you. With mortgage rates the way they are, a 10 year mortgage (the life left in my mortgage) rate is under 5.5%. Would you lock in?

I'm already considering it. I wouldn't do it at 5.5% but my mortgage broker seems to think that with competitive pressure the 10 year rate will get into the low 4's. At that rate I don't care what variable is I'll lock in for 10 years.