All Forum Posts by: Patrick Davis

Thanks, Austin! Great points and a lot to consider - all the best!

Good points and thanks for your response.  Glad your neutral position is working! What's your opinion (in general) of substituting and/or adding real estate to the gold quarter of the pie in Harry Browne's allocation?

tl:dr Ya, I'm definitely looking at more things that perform well when inflation is higher, but have been basically holding a potential downpayment in cash/bonds. But, it's also why I was searching Bigger Pockets for Harry Browne, too :)

(Imho - this is all more of a tangent) In general, in terms of saving up for real estate downpayments, that's a tough call and I couldn't speak as an expert or tell others what to do, but ya I think (imho) I would ideally want to try to hold some less volatile but somewhat inflation-protected as well as cash if I was looking at a mortgage in 1-2 years. 

Also, it may depend on projected personal income during that period, too, I would imagine. 

But I will say "drawdowns" depend on the length of holding for the down payment, in other words what's the time horizon?

One rule of thumb (this might change in higher inflationary periods) - if someone plans on spending money within 12 months then hold in mostly cash, if 12-24 months then more bonds, if longer, like, 5+ years then add more equities, etc.  For example (https://steadyoptions.com/arti...)  This rule of thumb usually doesn't include precious metals, etc.

Basically the shorter time period, the more someone would want to increase liquidity, minimize volatility, and not lose real money.  

In terms of higher inflation, then yes the risk/return/reward ratios for asset classes may arguably change - I'd be curious what others think?  This is a tough call (and why I was looking into Harry Browne, etc)

Harry Browne's asset allocation was designed (I assume) for longer-term holding and lower volatility, so it might be good to run simulations on previous periods using similar time horizons. Depending on the time horizon, one might consider also include REITs, TIPS, crowdfunding stuff especially since that might correlate with changing real estate prices. 

This is a pretty cool tool to compare how historically (in the US) different asset allocations worked (https://www.portfoliovisualize...).  One could set the clock to the early 70s, set the buzzer for their time horizon, and try out some different possibilities. 

That being said, there's plenty of arguments how the 2020s and 1970s are different eras in many regards.  In any case, best wishes!

P.S. As an aside, the asset allocation that seems to have performed best for the US is the modern portfolio theory - it's what the managers for Yale/Harvard/etc have done. It basically incorporates real estate, privately-held equities and other stuff. (https://www.advisorperspective...)

Hi - I just was looking for the answer to basically the same question.  I'm not an expert, but it could be argued that both fixed rate debt (like a mortgage) and some income from real estate would both do well in an inflationary environment.  So perhaps real estate financed with fixed rate debt might be a more risky/higher return that functions somewhat like gold? Again, I'm not a financial planner or expert, just my 2 cents!

Originally posted by @Russell Brazil:

Peter Schiff has been predicting the end of the world for almost as long as I have been alive. He has predicted just about every asset collapsing for 30 years. He was right once, but wrong hundreds of other times.  He has certainly gotten rich though through promulgating this fear as he has gotten investors to turn over a few billion dollars to him to manage. 

I dont feel like looking up the historical returns...but year to date the S&P 500 is up 25.45%. The 5 funds that Schiff's Euro Pacific runs have year to date returns of 8.54%, 4.29%, 3.48%, -5.58%, -20.17%.....and thats even before accounting for the expense costs on each of those that range from 1.15% to 1.75%. 

Also, he charges 1-4% front-load fee https://europacificfunds.com/f... He's easily making in $20-30M (with a few billion in assets) in yearly fees, etc, so he definitely has a strong financial incentive to promote certain economic ideas.  That being said, it's very interesting to hear his perspective.

Good points everyone - imho/2 cents (I'm not an expert). The fed "prints" money and set interest rates.  Obviously, there's lots of other factors to inflation/price increases.

Another key factor seems to be velocity of money which also can effect deflation/inflation. Also, foreign investment in US bonds, real estate and stocks which has been pretty low.  And USD is the default currency, but at some point that will probably change (could be a long time).  Many governments, not just the US, have "printed" money since 2020, for example Turkey.  

The trade-off to raising interests for the USA government is higher debt payments. But it would theoretically dampen inflation.

Not raising interest rates would effectively allow the government to "save" money on debt payments and social security, etc.  But then it would probably encourage inflation - which might also save" money on debt and SS.

One big difference between the 70s and now - the debt/GDP ratio has increased a lot - raising the interests to 5-11% could result in massive increases in government debt payments in a few years (basically 3-5x+ the current payments.  So there may be a lower upper limit to interest rates now than b/c of debt/GDP. Also, with higher taxes on the horizon, real GDP might slow which could also limit federal tax revenue.

Also, I believe the trade deficit has increased as well. (https://www.macrotrends.net/co...)

Good points about cap rates for CRE syndications, etc. It's a good point that personal mortgages seem to be much more secure than in 2008.

In terms of cap rates for CRE. If the interest rates increase, then probably cap rates would need to increase too in order to stay competitive (P/E for stocks, too)? This would mean the CRE might face a correction, or at least properties with low cap rates. (https://apartmentpropertyvalua...) (https://www.adventuresincre.co...)

Also, another interesting point, in 2020 the fed changed it's accounting on checking/savings accounts (M1/M2), so some people maybe misinterpreting the amount of new money - still a lot, but not as much as you may hear in some places.

Also on the horizon are some local changes to real estate laws- for example: affordable housing requirements in Chicago (20% and not donations for larger buildings in 2022), Airbnb regulations (for example, Creste Butte), smaller sized apartments allowed (NYC/LA), more ADUs allowed, etc.  These all will probably change the local markets.

On the other hand, the a lot of money earmarked for helping people cover mortgage payments is about to expire soon, so that might sadly affect residential in some areas.

Anyways, just my 2 cents, thanks and best wishes!