Larry Swedroe is the Principal and Director of Research at Buckingham Family of Financial Services. He is also an economic speaker, author, and researcher, with over 4 decades of experience in personal finance. Larry is a frequent speaker on NBC, CNN, CNBC, and Bloomberg. He joins Jared Siegel to discuss national debt, the possibility for tax changes, and how to predict and measure inflation in a more objective way. He shares what paradigm shifts investors should be considering today to protect and preserve their purchasing power going forward.
Here are a few highlights from their conversation:
Markets are forward-looking, and don’t go up just because the economic news is good, Larry explains. The markets only go up when the news is better than expected. Only unexpected events matter because being able to forecast the economy well still doesn’t accurately predict what the markets will do.
A likely scenario is that due to current economic conflicts, the value of the American dollar will be lessened, which will provide a tailwind for foreign assets. Another likely scenario is that the massive deficits in the economy will potentially cause central banks across the globe to dump dollars, as they did in late 2018.
Jared asks Larry how the market is currently pricing inflation. The 10-year nominal yield provides a proxy for the projected percentage of inflation, he responds. Additionally, he shares what role commodities play in protecting yourself and your long-term purchasing power.
Being a value investor is a hedge in your portfolio against the run-up in commodity prices, Larry comments. “Throughout history, value companies have historically done well during inflationary periods,” he says. “That’s part of the reason value stocks have outperformed in the last year.”
Gold is an awful long-term investment that has provided zero real return for the past 2000 years. It’s a good inflation hedge, as it tends to do well in short bursts due to inflation, but it goes through much longer periods of bad performance.
Larry recommends that listeners move their assets out of their estates before the changes in estate taxes take effect next year. “It might be prudent to start looking at gains now because capital gains rates are going up regardless of what’s going on,” he advises.
Regardless of who is in the White House, there will almost certainly be massive tax increases over the next decade. “If deficits can’t continue, then they will end; it’s only a matter of when, not if,” Larry remarks.
According to Larry, the four horsemen of the retirement apocalypse are: high bond prices, high valuations, aging populations, and that populations are aging longer.
Resources
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