Are shares inflation protected?

[Lewylewylewy]

Here's a point of discussion: are shares an inflation protected investment?

On one hand they have a high ROI, and therefore typically have a greater than inflation return.

On the other hand, they aren't an quite an asset that is linked to inflation in the same way consumer goods are (for example).

If they aren't an inflation protected asset, then you could argue that it's not advisable to invest in shares for retirement income.

What are people's thoughts on this?

[macduffy]

No, not directly linked to inflation but the "right" equities offer growth - through growing earnings - that cash, deposits and bonds don't.

Higher risk, of course, and retirement planners will therefore usually advise older folk to cut down on exposure to equities as they grow older and less able to absorb losses of capital.

Depends largely on attitude to risk - and ability to manage/monitor one's investments.

[smpl]

Short answer, no.

If you want exposure to inflation the best way is through Treasury Inflation Protected Securities (TIPS).

A case can be made for property too but that has gotten way over valued.

[Lewylewylewy]

Could it be argued that shares priced close to their NTA are inflation protected, where the NTA is based on assets that could be considered inflation protected? For example, a REIT? Also, they may sell a product that is priced in line with inflation and have some assets, such as AIA?

[smpl]

It could be argued that shares perform better than inflation, ie 8% p.a. bs 1-3% pa in New Zealand

However, you will not be able to show that shares go up when inflation goes up.

So what is your question? The first point says that shares will do better than inflation, the 2nd points says that timing matters ie when inflation kicks in over the next few years, owning shares isn't going to help you.

[Lewylewylewy]

I don't really have a point, just curious about what people think about the idea so I wanted to start a discussion. I was hoping that a discussion might bring new ideas to the subject for me to think about (TIPS is new to me, so thanks for that one!).

I think that it's important to create a retirement income that's inflation protected and i think that property is the best inflation protected asset you can have. but I'd love not have to own property as part of my retirement income because it's full of hassles and stress.

I wonder how (or if) others are protecting against inflation in their retirement investments? I guess that's my question :)

[macduffy]

I wonder how (or if) others are protecting against inflation in their retirement investments? I guess that's my question

"Attempting to protect" might be a better question.

Personally, keeping a relatively high proportion of equities in my portfolio - and cutting back on the speccies - has worked - so far!

:cool:

[rentex]

Lewylewylewy, I'm biased so please take that into consideration. :)

There are definitely hassles with properties, typically maintenance and doing regular inspections.
We have had countless owners sell properties due to this or the odd tenant niggle and then later say they wish they hadn't.

In property management, the better maintained the property, the lower number of hassles and the easier it is to handle the odd thing that pops up. Tenants tend to take better care of the property and stay longer too. If you've held your properties for a while then they are probably already at this stage. :)

If keep rents realistic at market then tenants typically stay longer and you can always attract good ones.
For us in Auckland, tenancy lengths are increasing every year which is great for property owners. I see no reason for this trend to reverse in a hurry.

[fungus pudding]

Here's a point of discussion: are shares an inflation protected investment?

On one hand they have a high ROI, and therefore typically have a greater than inflation return.

On the other hand, they aren't an quite an asset that is linked to inflation in the same way consumer goods are (for example).

If they aren't an inflation protected asset, then you could argue that it's not advisable to invest in shares for retirement income.

What are people's thoughts on this?
Nothing is inflation protected, although a good investment should provide a hedge against inflation.÷