RetireJapan

Tsumitate Wrestler wrote: ↑Fri Apr 26, 2024 12:44 am

ToushiTime wrote: ↑Thu Apr 25, 2024 10:52 pm
As I understand it, these inflation-linked bond funds only work if inflation rises more than expected. If inflation rises as expected, you lose out because regular bonds/bond funds are already discounted for inflation expectations, and the premium you pay for inflation protection from JGBi funds is wasted. I might consider JGBIs and hold to maturity if they were available to us retail investors, but they are not.
Unfortunately, the past performance of these mutual fund versions and the issue of Japan's debt puts me off them.

It's a hedge against inflation, how expected that inflation is is perhaps a bit more difficult to judge in Japan.

Surely, JGBis and JBGi funds are only useful as a hedge against unexpected inflation only?
At least, that is what everything I have read on this subject says.
Regular bond and bond fund prices are already discounted by investors for expected inflation.
The extra you pay for inflation-linked bonds and funds, in the form of lower yields/higher prices versus regular bonds, covers the portion of inflation in excess of expected inflation only.
If inflation merely lives up to expectations, you lose the extra money you paid for that extra bit of protection, and you would be better off with a regular bond fund that reprices in inflation over time as it rolls over its holdings.

A mix of cash, JGBs and JGBi funds as you suggest would cover all bases I guess, but as I said, the past performance of those JGBi funds, the lack of 10 million yen protection that bank deposits offer, and Japan's massive debt give me pause for thought when considering this as an alternative to keeping my cash reserves in the bank.