Jason Zweig
speaker
906 appearances
17 recordings
1 series
first heard Jan 2018
last heard Sep 2022
Jason Zweig’s voice in public audio — every appearance, attributed to the second.
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Appearances
But if you overhaul your portfolio in ways that are disruptive, then if the inflation doesn't materialize, you will have done real damage to yourself.
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And if it does materialize, you should have time to adjust along the way.
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The first thing to realize is that if interest rates go up along with inflation, then the riskiest assets, the ones that won't pay off for the longest period of time, are not likely to do the best.
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And that's because when interest rates rise,
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you need a sooner payoff to justify deferring your reward for the longer run.
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So something like very high-priced growth stocks, for example,
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would probably become less attractive if interest rates rise along with inflation.
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Now, interest rates don't always move with inflation, but they often do.
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And as a result, taking a lot more risk in an inflationary environment probably doesn't make a ton of sense because it's better off to sort of focus on the bird in hand rather than two in the bush, as the old saying goes.
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There is a very common sentiment out there that value stocks, which are, you know, less expensively priced than growth stocks,
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will be more attractive in an inflationary environment.
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And there is some evidence for that.
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But I don't think the evidence is super strong that it's worth sort of dumping all your tech stocks or your other growth stocks to buy a bunch of value-oriented companies like financial stocks or energy or industrials.
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Because the difference in performance during inflation is not that large.
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You know, energy stocks, energy itself as a commodity and commodities in general have historically provided some insurance against inflation, just as stocks as a whole have done.
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The problem with energy and commodities is that they're extremely volatile, sort of explosively volatile, or maybe I should say combustibly volatile.
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You know, you could get a great return if inflation heats up.
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You also could get a very bad return if inflation heats up.
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And that volatility is the fundamental problem when you're thinking about energy or commodities, which is that while they're somewhat likely to protect you against inflation, they also have a kind of nasty habit of providing you a bad return just when you would like a good one to protect against inflation.
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Well, it's not a slam dunk because gold historically has done a decent but not really that great a job of keeping pace with inflation.
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