Protect Your Wealth from the Ravages of Inflation by Paul M. King

Author:Paul M. King
Language: eng
Format: epub
Publisher: Apress®
Published: 2011-08-26T16:00:00+00:00

The second point here simply has not happened (yet), so the TBT part of the portfolio will be losing money right now. In the testing I performed for this method, going back way before TBT existed, I created a synthetic TBT that moved inversely to yields on US treasuries and included it in the portfolio. It increased CAGR and decreased DD overall, so it's definitely worth including.

The same goes for including TIP, even though we know that the CPI-U understates real inflation. The extra diversification provided by including TIP is worth the caveats and problems. Again, my historical testing shows this to be the case.

Table 4-8 shows what the allocation would be as of April 2011 for the same $100,000 in cash we dealt with in the previous section (concerning a positive real interest rate environment). Since US dollars are not paying a positive real rate of interest, the $100,000 will be equally allocated to the six ETFs. If US dollars were included, then the allocation would be one-seventh to each ETF and one-seventh to US dollars.

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