How to protect my retirement against inflation?I have been thinking of taking a portion of my bond fund investment making 6% dividends and moving it to a foreign currency(s) basket to provide protection from inflation of the USD. Does anyone have knowledge of what funds I should consider? Is this a wise thing to do?
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I don’t know whether that will turn out to be a wise thing to do or not — there is certainly some logic to the strategy, but it was also a logical strategy in 2010 and for the last several years it would have mostly been a disastrous thing to do. Inflation may well come eventually, I think it’s important to have some inflation protection in a portfolio and certainly the Federal Reserve is desperately trying to create it — but it has been dramatically slower to develop than most people expected several years ago and we continue to see more reasons for money to flow into then US than out of it on the global markets. Calling the “when” on interest rates rising (which would mostly be in response to inflation, we hope — if interest rates rise without inflation we’re probably in trouble) is a popular hobby but is almost impossible.
I personally am almost entirely out of bonds now, but I’m in my mid-40s and have a high risk tolerance. I have owned some foreign currency baskets in the past, but they have, for the most part, done very poorly since the financial crisis (with some exceptions — like the spike in the Aussie dollar for a while). With a global push toward trying to create inflation in most of the developed economies, it’s very hard to tell who will win and push their currency down hardest. So far, it seems it’s the Japanese who have been best at driving down their currency, which is good for the dollar but bad if your foreign currency basket happened to have a lot of Yen in it.