Author: John Reagan
We love images that capture the benefits of “taking the long view.” Here is Rick Hill, our Co-Founder, on a family hike in Palm Desert. Rick knows that by removing the stress of investing out of our client’s lives, they can spend more time doing the things they love. Rick and Lynn Hill, who of course are clients themselves, estimate that they’ve saved six weeks per year by adopting an evidence-based approach. That’s 2.5 + years going back to 1998! Now start to compound the value of that time saved and the results become even more satisfying.
*Rick’s time-saving story was captured in Larry Swedroe’s books, most recently in Playing the Winner’s Game.
Like this? Follow us on Instagram and check out our team living the benefits of “taking the long view,” then send us your own example!
We’re fortunate inflation has been low, but that doesn’t mean we shouldn’t be prepared for its return. What are important ways we look at offsetting inflation for our clients? Our partners at Dimensional have outlined points on best practices. Read below.
- On Wednesday, January 13th the Labor Department stated that the consumer price index (CPI) increased by 0.4% in December and 1.4% for 2020, which was the smallest yearly gain since 2015 and was a significant deceleration from 2.3% in 2019.1
- However, given the $900 billion pandemic relief plan approved in December and the expectation for more fiscal stimulus, along with the rollout of the COVID-19 vaccine, some economists are forecasting a rise in inflation for the months ahead. As forecasts have moved higher, so too have market measures of inflation expectations. The 10-year breakeven rate, which is derived from prices of inflation-protected government bonds, recently climbed above 2% for the first time since 2018.2
Ways to mitigate the effects of inflation while still growing wealth:
- Commonly, equities are used as the growth asset within a portfolio and can help protect against purchasing power risk. While inflation has averaged about 4% annually over the past 50 years3, stocks (as measured by the S&P 500 Index) have returned around 11% annually during the same period.4 Therefore, the “real” (inflation-adjusted) growth rate for stocks has been around 7% per year, for the period.
- There are also tools within fixed income to hedge inflation risk including Treasury Inflation Protected Securities (TIPS). TIPS deliver the credit quality of the US Treasury, while hedging against unexpected inflation. As inflation (measured by the CPI) rises, so does the par value of TIPS, while the interest rate remains fixed. This means that if inflation unexpectedly rises, the purchasing power of any principal invested in TIPS should also increase. Dimensional’s Inflation Protected Securities Portfolio (DIPSX) launched in 2006 and has been ranked in the top quartile of its Morningstar category over the last 1-,3-,5-, and 10-years, outperforming its benchmark over each of those time periods.5
- When considering future consumption, investors may prefer a strategy that might provide higher expected returns over TIPS by investing in corporate bonds, while tax-sensitive investors may prefer a strategy that provides exposure to municipal bonds in addition to inflation protection.
Bottom Line: The good news…our clients don’t have to keep track of all these tools. That’s why we’re here for you. We stay on the cutting edge of investing and implement the best-in-class solution in an evidence-based investing world on your behalf. Curious how we can help you hedge inflation risk in your portfolio? Schedule a complimentary call with our advisory team by clicking here.
Last month we shared five things that can still be done in December to minimize your 2020 taxes. With only a day left in the year, the number one thing you can still do to offset your taxes is to GIVE.
Giving is a tax one two punch – lowering taxes today and tomorrow.
Charitable contributions are tax-deductible in the year you make the gift, either to your favorite organization or your Donor Advised Fund. By contrast, gifts to individuals provide a longer-term benefit – they are a great way to lower your overall estate and reduce the amount that is potentially subject to estate taxes in the future. Cumulative gifts to an individual up to $15,000 [$30,000 for a married couple filing jointly in 2020] are under the annual gift exclusion and do not require a gift tax return to be filed. If you give more than $15,000 to one person, you may have to file a gift tax return, and we would encourage you to consult with your tax professional. Of course, for clients of Hill Investment Group, we handle the consultation and coordination.