Inflation Q

Inflation = normal…what outperforms? CASH, RE, EQUITY, BONDS

Inflation = High …what outperforms? CASH, RE, EQUITY, BONDS

Deflation … what outperforms?? CASH, RE, EQUITY,BONDS


normal: equity, bond (not sure)

high: cash instruments, real estate

deflation: bonds

with the high case …

choose cash instruments base on assumption of high short-term interest rate (increasing)

however, it is said that cash can not protect…from high inflation? equity is better than bond though commodities is the best…how abt real estate ?

I dont know what i am saying…:))

high inflation is good for real estate.

rent income increases as inflation goes up.

Stocks outperform in normal(or low) inflation Cash and RE outperform in higher thn expected Inflation; Bonds outperform in deflation.

@ tulkku

equity provides good hedge against inflation right? Y dont we use then in high infln scenario?

Inflation below expectations (normal)----> Good for equity…for rest - neutral

Inflation above expectations ----> Bad for both Equity+Bonds, Good for Cash & Real estate

Deflation-----> Only good for Bonds, for rest its bad

^ 100% correct per CFAI text

how is inflation above expectation good for cash?

will unexpected increase in inflation not reduce the value of your cash?

High inflation usually comes with higher short term rate, or even inversed yield curve. Cash or cash equivalents can be invested in a higher short term rate.

Oh yeah. Thanks.