How to hedge against hyper inflation?

[martin]

Been disciplined, working hard, scrimping and saving for old age but i keep wondering, in the event of hyper inflation, our hard-earned savings may still come to nought, so how to minimize this risk? Does investing in property help? Or buy STF ETF? During times of hyper inflation, will these two rise accordingly?

Will deposit interest and cpf rates go up accordingly too?

And what might cause hyper inflation?

 

[JuniorLion]

Buy bitcoin, 3x leveraged/inverse leveraged ETFs, precious metals like platinum/palladium/rhodium, start a ponzi scheme.

 

[lifeafter41]

Perhaps buying gold might help.

 

[chrisloh65]

Buy properties because property prices always go up with inflation (or hyper inflation), very often higher than inflation rate.

Been disciplined, working hard, scrimping and saving for old age but i keep wondering, in the event of hyper inflation, our hard-earned savings may still come to nought, so how to minimize this risk? Does investing in property help? Or buy STF ETF? During times of hyper inflation, will these two rise accordingly?

Will deposit interest and cpf rates go up accordingly too?

And what might cause hyper inflation?

 

[SBC]

GST 9% to your rescue.

 

[iduncheckmail]

Buy things that will inflate together with inflation

 

[treeskull]

Get something that have intrinsic value in it

Sent from 你是我的小啊小苹果儿怎么爱你都不嫌多红红的小脸儿温暖我的心窝点亮我生命的火火火火火火 using GAGT

 

[BBCWatcher]

Been disciplined, working hard, scrimping and saving for old age but i keep wondering, in the event of hyper inflation, our hard-earned savings may still come to nought, so how to minimize this risk? Does investing in property help? Or buy STF ETF? During times of hyper inflation, will these two rise accordingly?

Perhaps buying gold might help.

Only if you want a quite inferior inflation fighter.

Buy properties because property prices always go up with inflation (or hyper inflation), very often higher than inflation rate.

Bzzzz, nope. Your one owner-occupied home has some merit as an inflation hedge, especially in retirement, but otherwise real estate is a mediocre inflation hedge at best. One reason is that hyperinflation or even higher inflation is highly likely to trigger many, many mortgage defaults, depressing real estate valuations.

Buy things that will inflate together with inflation

Yes, but what?

The very best answer to this question is to buy sovereign real return bonds, a.k.a. inflation indexed bonds. Unfortunately the Singapore government doesn’t offer them — it should! — but other high quality governments do in a variety of currencies. Since the Singapore dollar itself is currently managed as a loose peg to a trade-weighted basket of other currencies, a low cost index fund that invests in quality sovereign real return bonds in a variety of currencies would be the very best instrument to defend against hypothetical Singapore dollar hyperinflation, or indeed hyperinflation in any currencies.

The next best answer, according to long running historical experience, is a well diversified stock index fund.

So there you go, the top two investments that have proven to be the strongest available defenses against hyperinflation. I don’t think there’s much chance at all of Singapore dollar hyperinflation, but there you go.

And yes, I would predict that CPF assets would do pretty well in a hyperinflation scenario, but we really don’t have enough historical data to feel as confident about that.

 

[martin]

Buy things that will inflate together with inflation

Erm, such as?

 

[martin]

. I don’t think there’s much chance at all of Singapore dollar hyperinflation, but there you go.
.

but why not?

 

[BBCWatcher]

but why not?

Basically because the Monetary Authority of Singapore has enormous power at its disposal to manage the Singapore dollar (“capabilities”), and I don’t expect MAS officials to start taking copious amounts of hallucinogenic drugs or similar (“intentions”).

 

[martin]

Basically because the Monetary Authority of Singapore has enormous power at its disposal to manage the Singapore dollar (“capabilities”), and I don’t expect MAS officials to start taking copious amounts of hallucinogenic drugs or similar (“intentions”).

Oh, but what about major world events, political or economical, and also poor governance due to change in government? Basically, i want to understand what could potentially lead to hyper inflation?

 

[BBCWatcher]

Oh, but what about major world events, political or economical, and also poor governance due to change in government? Basically, i want to understand what could potentially lead to hyper inflation?

Singapore dollar hyperinflation? It'd have to be a profound Singaporean governmental dysfunction. Hyperinflation most often coincides with periods when governments run large budget deficits and choose to finance those deficits with increases in the money supply.

By the way, Singapore currently has and often has had tendencies toward the opposite problems: disinflation and deflation.

 

[Shiny Things]

in the event of hyper inflation, our hard-earned savings may still come to nought, so how to minimize this risk? [...]
And what might cause hyper inflation?

1) This is not going to happen.

The only thing that causes hyperinflation is the central bank going mad and running the printing presses.

The MAS is not insane.

2) Even if this did happen, the solution is simple - own some overseas assets, which you should be doing already as part of a sensible diversified portfolio.

 

[BBCWatcher]

The only thing that causes hyperinflation is the central bank going mad and running the printing presses.

Increases in the money supply are usually necessary(*) for hyperinflation, but that's as far as it goes. The Global Financial Crisis (re-)demonstrated that large increases in the money supply aren't enough on their own to cause inflation much less hyperinflation.

(*) There are alternatives, such as velocity increases, and critical, broad resource shocks.

 

[Hot_Dog]

I would say owning hard asset would be a good way to preserved your savings in the event of hyper-inflation. I think Gold would be a good choice. Granted it will not give you an income.
There others, like holding currency that is not hyper-inflating, etc..

*As to why it happens? As others have mentioned, excessive printing, and most importantly loss of confidence (This one is a motherhood statement). Everyone rushing for the exit at the same time.

 

[Dyhalt]

In my humble opinion the best inflation hedge is to make yourself a more useful person though education and experience

Personally I'm not too overly worried about hyper inflation, but in a simplified hyper inflation scenario, the best bet for most average joe is still real estate. The reason is because tangible assets retain most value during a currency crisis, but they also have the potential for rental income which follows closely to inflation. Mortage default happens when people are unable to service their loans during a recession but not hyperinflation, however in a worst case scenario they may happen at the same time, you also have to be aware whether current housing prices is overpriced or you might have bought at the wrong time to start with.

Cheers

 

[BBCWatcher]

I think Gold would be a good choice.

You would think so, but when Fidelity conducted their 2012 study that backtested 9 assets against inflation from 1973 to 2021, gold came in dead last (#9 of 9) as an inflation fighter, beating inflation only 54% of the time. Among commonly available investment vehicles, a bog standard global stock index fund and global REIT index fund both did better.

However, the very best inflation fighting instruments are the real return bonds/inflation-indexed bonds, which of course makes sense because they're keyed to inflation itself -- they're direct instruments. If inflation rises, their yields rise, in lockstep -- perfect correlation. And I can give a specific example appropriate for non-U.S. persons: IGIL, the iShares Global Inflation Linked Government Bond UCITS ETF, domiciled in Ireland and traded on the London Stock Exchange. IGIL invests in high quality real return sovereign bonds. It currently has the following approximate allocations:

44.5%: U.S. dollar denominated r.r. bonds (U.S. TIPS)
29.5%: British pound denominated r.r. bonds
~18%: Euro denominated r.r. bonds
3.0%: Japanese yen denominated r.r. bonds
2.0%: Canadian dollar denominated r.r. bonds
1.0%: Australian dollar denominated r.r. bonds
<2.0%: other currency denominated r.r. bonds

The allocation to defend against British pound inflation is a little high for my tastes, but it'll combat any Brexit-related inflation rather well if it comes to pass. The expense ratio is a rather reasonable 25 basis points.

If you want U.S. dollar inflation defense specifically, i.e. a U.S. TIPS fund, then ITPS is available, also with 25 basis points of annual expense. It's also possible to buy U.S. Treasury Inflation Protected Securities (TIPS) directly through most U.S. brokers, at least. And if you have U.S. personhood or at least a U.S. TreasuryDirect account that you opened when you did, you can buy U.S. I-Bonds. You can also still buy paper U.S. I-Bonds if you have some sort of refund due from the U.S. Internal Revenue Service (tax agency) and use IRS Form 8888.

I'm not necessarily recommending you buy IGIL, ITPS, U.S. TIPS, or U.S. I-Bonds, but if you're concerned about future higher inflation then these vehicles are the best available inflation fighters.

 

[Hot_Dog]

You would think so, but when Fidelity conducted their 2012 study that backtested 9 assets against inflation from 1973 to 2021, gold came in dead last (#9 of 9) as an inflation fighter, beating inflation only 54% of the time.

The very best were the real return bonds/inflation-indexed bonds, which of course makes sense because they're keyed to inflation itself -- they're direct instruments. And I can give a specific example appropriate for non-U.S. persons: IGIL, the iShares Global Inflation Linked Government Bond UCITS ETF, domiciled in Ireland and traded on the London Stock Exchange. IGIL invests in high quality real return sovereign bonds. It currently has the following approximate allocations:

44.5%: U.S. dollar denominated r.r. bonds (U.S. TIPS)
29.5%: British pound denominated r.r. bonds
~18%: Euro denominated r.r. bonds
3.0%: Japanese yen denominated r.r. bonds
2.0%: Canadian dollar denominated r.r. bonds
1.0%: Australian dollar denominated r.r. bonds
<2.0%: other currency denominated r.r. bonds

The allocation to defend against British pound inflation is a little high for my tastes, but it'll combat any Brexit-related inflation rather well if it comes to pass. The expense ratio is a rather reasonable 25 basis points.

If you want U.S. dollar inflation defense specifically, i.e. a U.S. TIPS fund, then ITPS is available, also with 25 basis points of annual expense. It's also possible to buy U.S. Treasury Inflation Protected Securities (TIPS) directly through most U.S. brokers, at least. And if you have U.S. personhood or at least a U.S. TreasuryDirect account that you opened when you did, you can buy U.S. I-Bonds. You can also still buy paper U.S. I-Bonds if you have some sort of refund due from the U.S. Internal Revenue Service (tax agency) and use IRS Form 8888.

Looking back it does seems that gold would not be a good bet, but imo, there are serveral reasons for that. One of reason I would say is that it does not represent hyper-inflation case (inflation yes) and thus no loss of confidence. Ppl still think they can profit\gain from the system.
2nd reason that I would postulate is that, as you say there are more instruments like bonds, equities etc.. that will absorb the excess liquidity.
However it is my opinion that in the case of real hyper-inflation, everyone would be rushing for an exit and anything that is of value would be snap up and thus, gold in that situation would be a good bet for preservation (at least) of one's savings or whatever is left of it.

 

[BBCWatcher]

However it is my opinion that in the case of real hyper-inflation, everyone would be rushing for an exit and anything that is of value would be snap up and thus, gold in that situation would be a good bet for preservation (at least) of one's savings or whatever is left of it.

I'm answering the question asked, and it's a good answer.

Fidelity suggests that even in the "end of the world" situation you suggest, you can do better than gold. For example, they backtested a multi-metal fund, and that still wasn't a good inflation fighter but it did better than gold alone. Which makes sense of course because gold prices are more prone to fluctuation as industrial demand and uses vary, jewelry demand varies, mining discoveries and efforts vary, and large holders (particularly the sovereigns) add to or divest their holdings. Adding silver, platinum, palladium, etc. to the mix is quite helpful. Still not great, but helpful in boosting correlation with inflation.

But then we start to hear the custodial criticisms, so you should hide metals under your mattress, right? Well, no. As soon as you start heading down that path, you're getting into "prepper" territory, and that really means investing in nonperishable food buckets and frankly not living in Singapore at all.

....Look, let's not get silly here, or at least let's try to stay logical within flights of fancy. Even if you fear inflation, you're just not going to see all the world's high quality currencies hyper inflate and all the world's high quality sovereigns simultaneously default on their debt obligations, which is what they'd have to do to break real return bond obligations.(*) IGIL works. And if you do think all the world's major governments will fail hard, you won't want gold. You'll want food buckets and a bunker in Idaho (or something similar).

(*) And governments don't have to break real return bond obligations even if they want to play games with debt loads. I don't think there's any country that has even as much 10% of its sovereign debt load in the form of real return bonds. The other 90+% can be inflated away if the particular government wishes it. There are also taxes, of course, which can apply to anything, including metals.