The best Inflation Hedge?


In the last post, I talked about gold as the investment of choice in bad economy. After reading an article from investmentu.com, my current understanding is not quite true. Here is the excerpt:

Dr. Jeremy Siegel, a professor of finance at The Wharton School of the University of Pennsylvania and author of Stocks for the Long Run, has done a thorough historical study of the returns of different types of assets over the past couple hundred years.

What he discovered is dramatic:

  • $1 invested in gold in 1802 would have been worth $32.84 at the end of 2006.

  • The same dollar invested in T-Bills, with interest reinvested, would have grown to $5,061.

  • $1 invested in bonds would be worth $18,235.

  • And $1 invested in common stocks with dividends reinvested – drum roll, please – is now worth more than $12.7 million.

The Ultimate Inflation Hedge - Stocks

Read more here

, ,

  1. #1 by Yani on July 1, 2008 - 5:48 pm

    Well, greater risk yields greater returns, right? Since gold is a commodity and relatively stable, hence its relatively ‘boring’ returns 🙂

  2. #2 by norisa on July 3, 2008 - 8:58 am

    Do you have any suggestion which stock available in Malaysia that most best inflation hedge right now? +unit trust (other than ASB)? I’m afraid that inflation in Malaysia will increase to 7% by next year

    • #3 by Mohd Basir Ahmad on July 7, 2008 - 3:45 pm

      Real inflation rate is much more than that. Stock ? Any stocks with underpriced low P/E and high growth potential.

  3. #4 by lochoe on July 4, 2008 - 1:14 pm

    for last month June 2008, inflation in malaysia already reach at 7%, read on the star, thursday. seriously, if the polical issues and price hiking of material still not solve by governemnt, the inflation might be hiking as well

    • #5 by norisa on July 4, 2008 - 2:22 pm

      Really? That was really fast. But why last two weeks Bank Negara declared 3-4%?I hope that govt and the opposition party should stop fighting and accused each other. This situation is really bad, if the inflation reach 8% it means that there will be stagflation: inflation+unemployment will increase. The Malaysian citizen will suffer even worse.Really sad with current situation we face right now…

      • #6 by lochoe on July 5, 2008 - 4:03 pm

        owh.. well, i dont think political issue effect too much, cause the government still have majority in any voting decision..
        this is because oil and commodities processing hiking… already explain details at my website http://www.ringgitune.com , please be free to visit ek.. huhu…

  4. #7 by Thinkerich on July 6, 2008 - 10:45 am

    Bro,

    Thanks …great sharing!

    THINKERICH

    • #8 by lochoe on July 6, 2008 - 6:15 pm

      welcome 🙂

      nice name.. is it thinkerbell is a name.. because its think about bell.. erm.. sounds weird.. huhu.. who cares..

  5. #9 by JL on July 6, 2008 - 12:19 pm

    oh..the inflation of 7% is only focus on one or two sector. As for the inflation for 3-4% given by the BNM, it will include all sector in Msia. Some sectors are not affected, so the they will lower the overall inflation figure.

    There will a new fund launched on 8July 2008, named: Public Far-East Telco & Infrastructure Fund (PFETIF). i think this is a good to hedge inflation. My agent update me with the facts n i think i’l use this fund to achieve my retirement goal…

    after reading this blog, i might consider to be agent of my own as i can monitor my funds n my father’s fund well.

    • #10 by lochoe on July 7, 2008 - 3:15 pm

      you can get free monitoring report at http://www.ringgittune.com to monitor you and ur father investment, become consultant is not only the choice

      by the way, good luck for ur carreer as unit trust conusultant 🙂

    • #11 by Mohd Basir Ahmad on July 7, 2008 - 3:48 pm

      If you’re in Kuching, you can call my agent Luqmanul/Sabrina Lee at 012-2070940.

      Rgds
      MBA 0173355733

  6. #12 by Meera on July 7, 2008 - 11:46 am

    Hi Irwan,

    Now that the inflation rate is at 7 (assume) is is the best time to refinance a house. Would appreciate your comment. Need the extra cash to sovel some debt.

    Thanx a million

    • #13 by Mohd Basir Ahmad on July 7, 2008 - 3:49 pm

      Refinance quick before they revise the BLR.

      • #14 by norisa on July 8, 2008 - 9:28 am

        What happen to the existing loan, if they revise the BLR? Would it effect the duration or monthly installment?

    • #15 by sheikh on July 11, 2008 - 12:16 pm

      Hi Meera,

      I think it is a good time for you to refinance your house.

      Increase in BLR will not effect your monthly payment. The payment will still be the same, but the amount of principle amount paid monthly will decrease and your repayment period will increase eventually.

      My wife is a conveyancing laywer dealing with housing loans and she has been very busy lately due the increase in the numbers of people refinancing their house.

      If you guys out there are interested or wnt to find out more on the rate, can email me at

      sheikh5550@gmail.com

      or

      you can direct the questions to Ms. Lawyer herself at

      noorazwaismail@yahoo.com

  7. #16 by casey on July 14, 2008 - 11:50 am

    hi irwan…

    i believe you got it right. gold is a good hedging instruments for inflation. hedging is not investing. hedging is as it is hedging.

    the meaning of hedging via wikipedia means

    ‘In finance, a hedge is an investment that is taken out specifically to reduce or cancel out the risk in another investment. Hedging is a strategy designed to minimize exposure to an unwanted business risk, while still allowing the business to profit from an investment activity…’

    So if you are talking about investing then the article you quote is correct. Returns would be greater in equity stocks. And gold investment/returns sucks…

    if you have cash and you don’t want to see it’s value devalue over time, then buy gold to hedge the value. not investing for returns….

    anyway… your articles are a great read…

  8. #17 by Nizami on February 21, 2009 - 1:36 am

    I invest in ASN, ASB, ASW, and ASD with average RM150 per month each. In addition, for the sake of having solid money that wont changes its value even if US is bankrupt, I buy gold constantly every 3 months each worth 1 gram. At least, if something happens, I still got some ‘money’ with me.

Comments are closed.