Where will inflation stop?

I'm not super finance-savvy but I work for a publicly traded corporation and am a shareholder in a handful of others and I have been seeing a lot of red lately, which gives me more than a little pause in the context of the crazy inflation we're experiencing.

The other thread got nuked (and rightfully so, geez did that go on a bad tangent) but Tesla has had *$114 billion* wiped from its value today as a result of Musk's antics with Twitter. I have always thought Tesla was overvalued but this a hell of a snap reaction. Netflix stock also fell off a cliff last week, and Meta (Facebook) has been in the toilet since 2021 warnings were reported.

https://www.forbes.com/sites/jonathanponciano/2022/04/26/tesla-stock-plunge-wipes-out-114-billion-in-value-as-twitter-deal-sparks-fears/

It feels like we'll be beyond mere "correction" territory very soon as more and more Q1 results get out there. Bad vibes.

Even before today's big loses Tesla had a PE ratio of ~205 meaning that if you bought one share of Tesla today at $876, it wouldn't double in value until the year 2227 given it's current earnings.

People have been speculating on PEG "Price-Earnings-Growth" meaning that they have been betting that Tesla will see wild, jaw dropping growth going forward which would pull the PE ratio down to more rational levels.

For comparison, the S&P 500's long term average PE ratio is around 15 and it's currently in the low 20's.

Do I believe we're in for a major market correction, yep...have I moved any of my money to safe harbor, nope.

Trying to time the market is a fools errand...buy and hold no matter what...never, never, never sell in fear.

BTW, I do statistical analysis for a living and last November my regression models were telling me that I'd walk out of 2022 $250,000 poorer than I walked into it.

Oh well, I always do one thing and one thing only...

Yep, learned that lesson about selling in fear the hard way when I was messing around with GME last year. I sold below what is now the 52 week low to try and recover some costs figuring it was a sinking ship. It bounced back 3 days later and I would have turned a respectable profit if I had just held on. 

pointofdeparture said:

Yep, learned that lesson about selling in fear the hard way when I was messing around with GME last year. I sold below what is now the 52 week low to try and recover some costs figuring it was a sinking ship. It bounced back 3 days later and I would have turned a respectable profit if I had just held on. 

In March of 2020 when the big COVID correction hit, I was working from home one day with a cable financial show running in the background.

My then 15 y/o daughter happened to walk by and I asked her to join me in watching a little financial news.

I said "I'm really tempted to take a good chunk of money off the table" and she said "but dad, you taught me to never, never, never sell in fear"

Sniff, I'm much more of a "have cake" rather than "eat cake" kind of person so she'll probably come into a significant inheritance when Mrs. Reven' and I are gone.

This is bigger than me, I need to lead by example to instill the best, statistically proven, investing behaviors possible in my two daughters.

pointofdeparture said:

I'm not super finance-savvy but I work for a publicly traded corporation and am a shareholder in a handful of others and I have been seeing a lot of red lately, which gives me more than a little pause in the context of the crazy inflation we're experiencing.

The other thread got nuked (and rightfully so, geez did that go on a bad tangent) but Tesla has had *$114 billion* wiped from its value today as a result of Musk's antics with Twitter. I have always thought Tesla was overvalued but this a hell of a snap reaction. Netflix stock also fell off a cliff last week, and Meta (Facebook) has been in the toilet since 2021 warnings were reported.

https://www.forbes.com/sites/jonathanponciano/2022/04/26/tesla-stock-plunge-wipes-out-114-billion-in-value-as-twitter-deal-sparks-fears/

It feels like we'll be beyond mere "correction" territory very soon as more and more Q1 results get out there. Bad vibes.

Markets (and pretty much everything) have been on such a tear for the last several years that I think we forget that occasional losses are a normal thing. The S&P500 dropped 17% in Q4 2018. Then it dropped 31% in early 2020. And now it's down about 13% Year To Date. That all sounds really scary right? Especially when you're used to seeing nothing but 15-30% annual gains.

And yet even with 3 "corrections" in the last 5 years, the market is still up 75% during that time:

Speaking of inflation, anyone notice the price of coffee at the grocery store lately? A 24 oz can of Folgers was $12.99 at the local chain store last week.  I'd swear it was about $8.99 a few months ago.

As far as the market is concerned, yeah... definitely all over the place these days, so I've been on "hold mode" as well, although I do need to start moving away from the more aggressive funds I've been in for years as I get closer to (hopeful) retirement.

Inflation update!

April CPE YOY: 4.9% vs. 5.2% in March

April CPI YOY: 6.3% vs. 6.6% in March

Past: Article in WaPo showing how and when leaders in Washington misjudged inflation: https://www.washingtonpost.com/us-policy/2022/05/31/inflation-economy-timeline/

Present: WSJ opinion piece by Biden that outlines his plan to tackle inflation: https://www.wsj.com/articles/my-plan-for-fighting-inflation-joe-biden-gas-prices-economy-unemployment-jobs-covid-11653940654

Future: Fed Govonor says he's prepared to increase the fed rate to 2.5 by the end of the year. https://www.cnbc.com/2022/05/30/fed-governor-christopher-waller-says-hes-prepared-to-take-rates-past-neutral-to-fight-inflation.html

In reply to frenchyd :

It is recommended by pretty much every financial advisor I've ever read that as you start to near retirement, you should transition from aggressive, higher risk investments to investments that tend to be less aggressive, but with lower risks.  It's not a flip-switch, but more of a slow dial turn over a number of years.  I have a general 75/25 high/low risk distribution and have for years.  In general, that ratio has served me well through a number of market ups and downs.  But as I plan to (hope? dream?) retire in 7 or 8 years, I should probably start to turn that dial towards the lower risk side.

In reply to Ian F (Forum Supporter) :

Your plan is correct. 

In reply to Ian F (Forum Supporter) :

You said it perfectly...nothing radical, just a gentle lifting of the throttle like how you'd slow a 911 while in a turn (well, this is a car forum after all).

 In a different thread, I mentioned that I sold some of a S&P 500 index fund two weeks ago to pay off my mortgage in anticipation of my eldest daughter heading off to college this August.

That sale represented a little less than 1% of my total portfolio...don't worry little 911, I got you. 

Ian F (Forum Supporter) said:

In reply to frenchyd :

It is recommended by pretty much every financial advisor I've ever read that as you start to near retirement, you should transition from aggressive, higher risk investments to investments that tend to be less aggressive, but with lower risks.  It's not a flip-switch, but more of a slow dial turn over a number of years.  I have a general 75/25 high/low risk distribution and have for years.  In general, that ratio has served me well through a number of market ups and downs.  But as I plan to (hope? dream?) retire in 7 or 8 years, I should probably start to turn that dial towards the lower risk side.

How much of that is simple reaction to perceived general nature of older people ? And how much is actual smart investing strategy?   
      Why would a investment strategy that's good for a 59 year old require sudden change at his next birthday?   
  Presuming retirement at age 65. And projecting another 25 years of life.  Wouldn't a wiser strategy be to remain aggressive with all but the next years income need?  
       Incidentally approx 25% of retirement eligible  retires are currently delaying retirement.  With a still strong economy ( and income opportunities)  assuming health reasons allow it why not?   Baby Boomers are outliving the previous generation by a decade.   

frenchyd said:

Ian F (Forum Supporter) said:

In reply to frenchyd :

It is recommended by pretty much every financial advisor I've ever read that as you start to near retirement, you should transition from aggressive, higher risk investments to investments that tend to be less aggressive, but with lower risks.  It's not a flip-switch, but more of a slow dial turn over a number of years.  I have a general 75/25 high/low risk distribution and have for years.  In general, that ratio has served me well through a number of market ups and downs.  But as I plan to (hope? dream?) retire in 7 or 8 years, I should probably start to turn that dial towards the lower risk side.

      Why would a investment strategy that's good for a 59 year old require sudden change at his next birthday?      

It doesn't, Ian specifically mentioned that he intends to slowly transfer some of his assets to lower risk investments....not all of them and not overnight just some of them over a significant period of time.

All human aspirations can be placed into one of two buckets; comfort and safety.  There comes a point of diminishing returns for both so as one becomes highly comfortable, it makes sense to start allocating more resource to safety.

For example, let's say that you would be highly comfortable living on a 150K gross annual income per year in retirement.  Using the 4% rule, you'd need a 3.75 million dollar portfolio to do that (ignoring SS, Medicare, pensions, etc.).

Now, let's say you've over shot on your savings objectives and you've got 5.0 million dollar portfolio which, again, following the 4% rule gives you a  200K gross annual income per year. 

You ask yourself "what the berk am I going to do with all of this money" and it dawns on you that there is one human aspiration beyond comfort...safety.

So, you throttle down on chasing that last possible dollar in exchange for boosting your level of safety.

It makes perfect sense to me. 

In reply to frenchyd :

Frenchy, that's just the way it is.
 

Investment strategies become more conservative as we age and need more liquidity. It makes sense to use more aggressive investment strategies (for growth) when we are younger and have more time to recover if there is a downturn. That's the wrong way to play it as we grow older. 
 

frenchyd said:

 
       Incidentally approx 25% of retirement eligible  retires are currently delaying retirement.  With a still strong economy ( and income opportunities)  assuming health reasons allow it why not?   Baby Boomers are outliving the previous generation by a decade.   

Because I want to enjoy traveling and my health while I can and don't want to work?  Plus, my mother (a Baby Boomer) will turn 80 in a few years.  She is pretty healthy, but I figure I will have a short window between when I can stop working and when caring for her will start to take up more of my time and being far from home will be more difficult (I'm an only child). 

In reply to frenchyd :

I strongly suspect that many baby boomers are delaying their retirement because they HAVE to. They have failed to build up a sufficient retirement egg to be able to retire, and are now forced to work. 
 

Don't you fall into that category?

Well if you can't define it, you sure can't stop it.

SV reX said:

In reply to frenchyd :

I strongly suspect that many baby boomers are delaying their retirement because they HAVE to. They have failed to build up a sufficient retirement egg to be able to retire, and are now forced to work. 
 

Don't you fall into that category?

Not because I failed to save.  I had a very solid nest egg when the 2008 recession hit. Between unemployment and my late wife's cancer, my retirement vanished.   
      22 million Americans shared the same  or much worse fate.  If you recall while 2009 slowly climbed out of the hole the nation was in.  It really was a long slow recovery. By the time I was able to actually get hired   ( such as it was ) over 5 years had passed.   My New wife too  lost a husband and went through a bunch  of poor paying jobs and unemployment patches as well  so neither of us have anything like what we originally had saved. 
       I see plenty of people our age who lost everything  often including a company retirement.   Now are  forced to take menial entry level jobs which are the only companies hiring people in their late 60's and 70's.   The bus company has a driver 84 and at 74 I'm not in the top 5. 
   I'll wake up tomorrow at 5:00 am start at 6:00 and get home around 7:00 pm  I'll get paid for 5 hours and maybe pick up a midday for another hour or two .  
   But Im lucky,   I kept my house,   think of the millions who didn't  

.  

RX Reven' said:

frenchyd said:

Ian F (Forum Supporter) said:

In reply to frenchyd :

It is recommended by pretty much every financial advisor I've ever read that as you start to near retirement, you should transition from aggressive, higher risk investments to investments that tend to be less aggressive, but with lower risks.  It's not a flip-switch, but more of a slow dial turn over a number of years.  I have a general 75/25 high/low risk distribution and have for years.  In general, that ratio has served me well through a number of market ups and downs.  But as I plan to (hope? dream?) retire in 7 or 8 years, I should probably start to turn that dial towards the lower risk side.

      Why would a investment strategy that's good for a 59 year old require sudden change at his next birthday?      

It doesn't, Ian specifically mentioned that he intends to slowly transfer some of his assets to lower risk investments....not all of them and not overnight just some of them over a significant period of time.

All human aspirations can be placed into one of two buckets; comfort and safety.  There comes a point of diminishing returns for both so as one becomes highly comfortable, it makes sense to start allocating more resource to safety.

For example, let's say that you would be highly comfortable living on a 150K gross annual income per year in retirement.  Using the 4% rule, you'd need a 3.75 million dollar portfolio to do that (ignoring SS, Medicare, pensions, etc.).

Now, let's say you've over shot on your savings objectives and you've got 5.0 million dollar portfolio which, again, following the 4% rule gives you a  200K gross annual income per year. 

You ask yourself "what the berk am I going to do with all of this money" and it dawns on you that there is one human aspiration beyond comfort...safety.

So, you throttle down on chasing that last possible dollar in exchange for boosting your level of safety.

It makes perfect sense to me. 

Do you realize how many people reach retirement with. Little or nothing saved? Not because they spent it all, or didn't save in the first place but  22 million Americans were laid off in the 2008 recession.  Many  losing their savings  or their company retirement or both. 
     How many more lost their homes?  And have been forced into rentals since due to credit damaged.  

SV reX said:

In reply to frenchyd :

Investment strategies become more conservative as we age and need more liquidity. It makes sense to use more aggressive investment strategies (for growth) when we are younger and have more time to recover if there is a downturn. That's the wrong way to play it as we grow older. 

I think this is true with one caveat. If your nest egg is so large that you have no reasonable expectation of spending it, then you are short changing your inheritors by switching into a conservative strategy.

IOW, if you have 10M nest egg, but only spend 100k per year, switching to a safer and lower yield investment strategy doesn't give you any added measure of safety, but is a drag on returns for those who will end up getting your estate. 

Another reason the rich get richer I suppose.

In reply to frenchyd :

Stop. 

These are the same tired (and false) 3 points you always make, they are irrelevant to this discussion, and doing nothing but derailing an otherwise interesting thread.

Thanks.

Inflation will stop when the bounce houses deflate! DUH!

Flynlow (FS) said:

In reply to frenchyd :

Stop. 

These are the same tired (and false) 3 points you always make, they are irrelevant to this discussion, and doing nothing but derailing an otherwise interesting thread.

Thanks.

I suppose if you assume everything will always go up and nobody will ever have serious health issues  or be laid off I can see your point.
  The reality is the world just doesn't always work that way.  

frenchyd said:

Flynlow (FS) said:

In reply to frenchyd :

Stop. 

These are the same tired (and false) 3 points you always make, they are irrelevant to this discussion, and doing nothing but derailing an otherwise interesting thread.

Thanks.

I suppose if you assume everything will always go up and nobody will ever have serious health issues  or be laid off I can see your point.
  The reality is the world just doesn't always work that way.  

Yeah, because that's what I said...you were even kind enough to quote me so I can see where I wrote it.

I asked once nicely, I'm out.  I have a don't feed the trolls policy. 

frenchyd said:

22 million Americans were laid off in the 2008 recession. 

How many of those 22 million [citation needed] laid-off Americans were within 5 years of retirement in 2008?

How many of those of career age were still un- or under-employed in 2012?

We get it.  Your specific circumstances were thrust upon you through absolutely no fault of your own.  We get it.

But your specific circumstances are far from universal.  You have led possibly the most idiosyncratic life of anyone on this board.

One comment on asset allocation, it assumes that bonds are a relative safe haven in comparison to equities. In the current increasing interest rate environment, bonds will likely be a losing proposition for the foreseeable future.