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Inflation-proof assets

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Can you have an asset whose value isn’t subject to inflation? I review a few examples, and ultimatly conclude that probably not. I’ve been thinking about this in the context of prediction markets—where a stable asset would be useful—and in the context of my own financial strategy, which I want to be robust. But these thoughts are fairly unsophisticated.

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Asset Resistant to inflation Upsides Downsides
Government currencies No Easy to use in the day-to-day At 3% inflation, value halves every 25 years.
Cryptocurrencies A bit Not completely correlated with currencies
  • Depends on continued community interest
  • More volatile
    • Hard to interface with mainstream financial system
  • Normally not private
Stock market Mediumly
  • Easy to interface with the mainstream financial system
  • Somewhat resistant to inflation
  • Nominal increases in value are taxed (!)
  • Not resistant to civilizational catastrophe
Noble metals Fairly
  • Can be melted and recast, making it in theory untraceable
  • Has historically kept its value
  • Depends on continued societal interest
  • Aluminium previously went down in value due to increased availability. This could also happen with other noble metals e.g., in the case of meteorite mining.
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Some other asset classes I looked into:

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General argument

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Large levels of wealth correspond to claims on the labor of other people, and in the longer term, over the labor of people who don’t yet exist. But future generations can always renegue on the promises made by their predecessors, for instance by inflating their currency. Therefore, a general inflation-proof asset doesn’t exist.

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Overall I’d be more optimistic about inflation avoidance strategies if they directly addressed that argument.

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Caveats to the general argument

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Even if you can’t get a generic inflation-proof asset, you can probably get partial protection through stocks & other instruments. Probably an optimal strategy would be to:

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  1. Use stocks/bonds/mainstream financial instruments to counteract run-of-the-mill inflation
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  2. Have some amount of gold/silver/cryptocurrencies which could be useful in the case of various catastrophes.
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Overall, though, I view the second step as pretty much optional and a bit paranoid. It’s not clear what the level is at which I’d actually implement it, but it’s definitely higher than my current net worth.

diff --git a/blog/2023/02/11/inflation-proof-assets/index.md b/blog/2023/02/11/inflation-proof-assets/index.md new file mode 100644 index 0000000..08f4a79 --- /dev/null +++ b/blog/2023/02/11/inflation-proof-assets/index.md @@ -0,0 +1,42 @@ +Inflation-proof assets +====================== + +Can you have an asset whose value isn't subject to inflation? I review a few examples, and ultimatly conclude that probably not. I've been thinking about this in the context of prediction markets—where a stable asset would be useful—and in the context of my own financial strategy, which I want to be robust. But these thoughts are fairly unsophisticated, so comments, corrections and expansions are welcome. + +| Asset | Resists inflation? | Upsides | Downsides | +|-----------------------|------------------------|-----------------------------------------------------------------------------------------------|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------| +| Government currencies | No | Easy to use in the day-to-day | | +| Cryptocurrencies | A bit | Not completely correlated with currencies | | +| Stock market | Mediumly | | | +| Noble metals | Fairly | | | + +Some other asset classes I looked into: + +- Government bonds +- Real state assets +- Various financial instruments +- Venture capitalist investments +- A clan or family +- Some other engine of value +- Prestige +- ... + +## General argument + +Large levels of wealth correspond to claims on the labor of other people, and in the longer term, over the labor of people who don't yet exist. But future generations can always renegue on the promises made by their predecessors, for instance by inflating their currency. Therefore, a general inflation-proof asset doesn't exist. + +Overall I'd be more optimistic about inflation avoidance strategies if they directly addressed that argument. + +## Caveats to the general argument + +Even if you can't get a generic inflation-proof asset, you can probably get partial protection through stocks & other instruments. Probably an optimal strategy would be to: + +1. Use stocks/bonds/mainstream financial instruments to counteract run-of-the-mill inflation +2. Have some amount of gold/silver/cryptocurrencies which could be useful in the case of various catastrophes. +3. Have some asset which produces value across a wide range of civilizational outcomes—e.g., allies, energy production infrastructure, personal skills, etc. + +Overall, though, I view the second step as pretty much optional and a bit paranoid. It's not clear what the level is at which I'd actually implement it, but it's definitely higher than my current net worth. + +

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