Manage risk. Do not chase above average yield.

One of the big disconnects between me and the various experts in the book In Pursuit of the Perfect Portfolio is I take an INSURANCE approach, NOT a yield-optimization approach.  (Those experts are Harry Markowitz, William Sharpe, Eugene Fama, John Bogle, Myron Scholes, Fischer Black, Robert Merton, Martin Leibowitz, Robert Schiller, Charles Ellis, Jeremy Siegel.)

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In insurance, your COSTS are LOW (like a homeowners insurance premium) and your RISK of losing money is very LOW. For example, if you buy gold to hedge against inflation, it will do fine until the inflation ends, which it always does. At that time, gold will plummet to about $1,000 an ounce less than its current value of $1,850, about a 40% loss of your life savings.

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Buying gold is NOT an insurance approach, It is a GAMBLE approach—betting the farm that inflation will happen, but that you will get out in time to avoid loss.

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An economist friend recently told me I was “early” on hyperinflation. The first edition of my book How To Protect Your Life Savings From Hyperinflation & Depression came out in 2010. “Early” is a no no in yield seeking. I don’t give a s*** about yield.
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The person who told me I was early on hyperinflation bought a one-year homeowners insurance policy on his home a year ago. It did not burn down during the year.

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“You were early.”

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“What do you mean?”

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“You bought fire insurance in 2021 but you did not need it in 2021. Your house did not burn down. Early. Early Early. You should have skipped the insurance in 2021. You wasted the premium you paid.”

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“No I didn’t. My mortgage lender made me get it. Plus I would have gotten it anyway. You don’t buy a one-year insurance policy because your house is going to burn down in the coming year. You buy it because it COULD burn down in the next year. It gave me peace of mind.”

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“Exactly! And in insurance, EARLY is everything and LATE is nothing. Being early may be bad in investing, but being late is DISASTER in insurance.”

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Insurance is not just a word. It is a set of explicit rules.

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Actually, my mindset is better described as RISK-MANAGEMENT. Insurance is a subset of risk management, one of the ways to manage risk.

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Risk-management is not just a compound word. As with insurance, it is a set of explicit rules.

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Risk management is the process of identifying, assessing and controlling threats to an organization's capital and earnings. These risks stem from a variety of sources including financial uncertainties, legal liabilities, technology issues, strategic management errors, accidents and natural disasters. Techtarget.com.

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One approach for this is provided by separating financial risk into four broad categories: market risk, credit risk, liquidity risk, and operational risk. Investopedia

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Strategies to manage threats (uncertainties with negative consequences) typically include AVOIDING the threat, REDUCING the negative effect or probability of the threat, TRANSFERRING all or part of the threat to another party, and even RETAINING some or all of the potential or actual consequences of a particular threat. Wikipedia

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These securities-investing guys are constantly recommendING bonds and they like Treasury Inflation-Protected Securities (TIPS). I understand these famous guys mostly won the Nobel prize in economics, but I am sorry. Anyone who tells you to buy USD-denominated bonds in 2022 is nuts. If the inflation rate exceeds the nominal rate on the bond, they have a NEGATIVE yield. And TIPS are only slightly better.

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TIPS claim that will adjust your principal and interest according to the CPI-W twice a year. That is TOO SLOW. At best, it means on the best adjustment day—the day you receive the adjustment, it is based on what prices were EIGHT MONTHS AGO. If the inflation rate is more than low single digits, the pittance you receive on adjustment day is literally a joke in terms of keeping you even with inflation.

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In theory, when the inflation ends, your TIPS will finally catch up with current prices. But If the inflation is high, where is the federal government going to get the money to make you whole? You have to believe in the Easter Bunny to think that is going to happen.

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In the early 1920s, Germany and Austria had the notorious hyperinflation with wheelbarrows full of paper currency. When in ended in 1923, The German government gave owners of German government bonds a token 5% payment in Rentenmarks, the new un-inflated currency. In other words, they restored about 5% of the purchasing power of the German bonds that became worthless in the hyperinflation. Stated another way, those who owned German bonds in 1920 lost 95% of their purchasing power.

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I doubt the US government in the 21st century would be able to do even that. The people paying the money to you to restore your purchasing power would almost all be Americans who did NOT buy TIPS bonds. Why are they going to go to work to earn that money and then give it to you? Because you were some kind of smarty pants in 2022?

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Not happening.

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Has the US government ever made a promise like the TIPS bond promise before? Yes, sir. When the US government tried to sell war bonds during WW I, the American people refused to buy them.

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Why? They were denominated in USD and the US government hyperinflation the currency after the Civil War with a currency called the Greenback Dollar. During WW I, the Civil War was only 52 years before. People remembered. So the US government had to make the war bonds GOLD certificates.

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A gold certificates is essentially a TIPS bond only they do not do any CPI calculation. They simply promise to pay you in gold, which does not inflate.

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Did the US government keep that promise? No. They reneged. Here is the document. https://en.wikipedia.org/wiki/Executive_Order_6102

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Will they do that again? Yes. The amounts are humongous. The US government will NOT have such amounts to pay to TIPS holders and the vast majority of the American people who are NOT TIPS holders will simply refuse to generate the money to make the TIPS holders whole with regard to purchasing power.

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Do NOT buy US bonds including TIPS. We have inflation already and we are likely to get much more.

Why am I anti-yield maximization? Only because it is impossible. It looks tantalizingly easy in retrospect, but no one can do it consistently over time. It takes two non-existent skills: stock picking and market timing.
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So do you just throw up your hands? No. Do what John Bogle said: work hard, save, and put the money in a broad index fund and forget it. Choose an index fund that has extremely low management fees, and minimizes transaction fees and gains tax transactions, like the Vanguard fund that Bogle started.
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You canNOT pick stocks or time the market. Bogle says to do what you CAN do. Save, buy an index fund, and minimize fees and gains taxes.
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Bogle died in 2019. But I think he would agree with me that you should also buy a home and replace it and buy larger ones as you can over your adult life. If there is home appreciation—at least as valid an assumption as index funds going up—and you borrowed as much as you safely could when you bought the homes, you will profit greatly from leverage.

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If the future is like the past, your 401(k) and home equity will rival each other for the title of largest part of your net worth.
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That, not chasing the fantasy that you are the world’s first stock picker or market timer, is how you build wealth on purpose.
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https://www.thestreet.com/opinion/stock-picking-is-a-fools-errand-11522723
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https://www.schwab.com/resource-center/insights/content/does-market-timing-work#:~:text=Our%20research%20shows%20that%20the,benefit%20of%20even%20perfect%20timing.&text=And%20because%20timing%20the%20market,invest%20as%20soon%20as%20possible.