individual value stock picks<\/a> with some fantastic picks, but also some not so good picks.<\/p>\n\n\n\nVanguard’s Selected Value fund (VASVX) is a mid-cap fund that could serve as a proxy for “value stocks”. It was trading at $26.41 on 16 May 2016. It is currently at $33.39. This is a return of 26.4% and an annualized return of 4.3%. Not stellar as I would not say this has kept up with inflation.<\/p>\n\n\n\n
The Vanguard Value Index is a large cap value fund (VVIAX). It started this period at $32.49 and is up to $56.68. This is a return of about 74.5% and an annualized return of 10.65%.<\/p>\n\n\n\n
A final example to look at, Vanguard’s Mid-Cap Index Admiral Shares Fund (VIMAX) started in this timeframe at $150.33 and is now at $320.62. That is a total percent return of 113% and an annualized return of 14.7%. Much better.<\/p>\n\n\n\n
Compare those to the Vanguard 500 (VFIAX), which started this timeframe at $184.53 and is now at $432.9. The total return of this fund was 134.6% an an annualized return of 16.77%.<\/p>\n\n\n\n
So while value stock fund did beat the rate of inflation and are a good hedge, they didn’t outperform your vanilla S&P 500 index fund.<\/p>\n\n\n\n
Bitcoin as an Inflation Hedge<\/h2>\n\n\n\n Compared to gold and silver, Cryptocurrencies, particularly Bitcoin has had all the action.<\/p>\n\n\n\n
On 16 May of 2016 a Bitcoin was trading at about $454. Today Bitcoin is trading at $64,346. That is an astounding increase of 14,073% or an annualized return of about 146%. <\/p>\n\n\n\n
Clearly Bitcoin has outperformed Stocks, Gold and Silver during this timeframe in an astounding way.<\/p>\n\n\n\n
I own Bitcoin and I’m not anti-bitcoin. But I’m also not a Bitcoin maximalist. I think it is possible and perhaps even likely that Bitcoin will be replaced with a superior cryptocurrency that has some combination of faster transactions, higher transaction throughput, anonymity and or additional features. In my view Bitcoin in its current state is too slow and transactions are too costly for it to work as a medium of exchange for day to day transactions. These views are very unpopular with Bitcoin maximalists that ignore or downplay Bitcoin’s weaknesses.<\/p>\n\n\n\n
However, Bitcoin has provided an incredible return and far outpaces inflation.<\/p>\n\n\n\n
The 14,073% return is not just a result of inflation, although it is increasingly being viewed as a safe haven alternative investment. <\/p>\n\n\n\n
Bitcoin has had several great tailwinds 1) It is an emergent asset class 2) It is trendy and popular and gets media attention 3) It is viewed as a Federal Reserve \/ dollar debasement hedge in place of gold.<\/p>\n\n\n\n
Inflation Hedges<\/h2>\n\n\n\n Protecting one’s wealth and purchasing power from inflation is important. Just keeping up with inflation is not ideal either, if the assets are not tax advantages, the government will tax the “gains”, and so purchasing power is eroded. <\/p>\n\n\n\n
Let’s look at a simplified example. Say you frequently buy a widget or pay a service that costs $100 per year. Say the price goes up 5% per year due to monetary inflation. You also have a $100 investment that also goes up 5% per year. You’re still not keeping up with inflation because of taxes<\/em>. If your $100 investment goes up 5% to $105, the government is going to want some taxes on that $5 gain. Say you’re on the hook for 15% capital gains taxes, the government is going to take their share and leave you with a $4.25 gain. <\/p>\n\n\n\nSo you now have to come up with another $0.75 to pay for the item or service. Scale this up to include all of your expenses for the year and you see that you need to not only keep up with inflation, but exceed inflation so you have the money to pay the taxes on the gains.<\/p>\n\n\n\n
In order to keep up with inflation your investment would need to be in a tax advantaged account that would lower or eliminate the tax burden owed or (again assuming a 15% gains tax) you’d need the investment to go up by about 5.9%.<\/p>\n\n\n\n
This also shows how insidious inflation is. Not only is money worth less, but the government taxes the gains, even if there was no gain in terms of purchasing power. <\/p>\n\n\n\n
One other thing to keep in mind, in the United States at least, realized gold and silver gains are taxed at the generally higher income tax rate rather than capital gains tax rate.<\/p>\n\n\n\n
Are Gold and Silver Great Inflation Hedges Anymore<\/h2>\n\n\n\nGold and silver might not be very good inflation hedges anymore. If I owned gold or silver I wouldn’t sell unless I needed to rebalance my portfolio. I would expect these assets to at least keep pace with inflation, but unless the demand for gold and silver increases in excess of new supply, I don’t think gold and silver will beat inflation in the way needed in order to truly hedge for inflation when accounting for taxes. While it has produced a positive return in excess of inflation, it certainly hasn’t been a fantastic play over the last five and half years since I started HowIGrowMyWealth.com<\/a>.<\/p>\n","protected":false},"excerpt":{"rendered":"My first article on this website was over 5 years ago, Inflation Destroys Dollars. I certainly did not have any idea that the price inflation would be triggered by the government’s response to the COVID-19 pandemic. I certainly didn’t anticipate the lockdowns and supply chain disruptions back in 2016. I know the fiscal and monetary […]<\/p>\n","protected":false},"author":2,"featured_media":369,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_et_pb_use_builder":"off","_et_pb_old_content":"","_et_gb_content_width":"","footnotes":""},"categories":[324,208,34,3,361,280],"tags":[11,153,18,286,122,303,71,70,48],"yoast_head":"\n
Price Inflation is Here - HowIGrowMyWealth.com<\/title>\n \n \n \n \n \n \n \n \n \n \n \n\t \n\t \n\t \n \n \n \n\t \n\t \n\t \n