Tuesday 2012-10-09

In technology, we have the saying: "good, fast, cheap; pick two". With investing, the trilemma runs "purchasing power preservation, liquidity, no losses; pick two". Poor Finance... just never as linguistically fluid as Technology.

Purchasing Power PreservationLiquidityNo LossesInvestment
NoYesYesBank Account
YesNoYesStocks + Bonds mix1

1 As long as you only sell in bull markets (which means illiquid during bear markets), you can maintain purchasing power.

I want a fund that has a dual mandate of maintaining both Liquidity and Purchasing Power (LPP). You would know an LPP fund by its attention to what people purchase today and will probably purchase tomorrow. With this inflation metric, it can then bias investments towards liquidity as much as reasonable.

An LPP fund would also hedge internationally in order to avoid currency depreciations relative to the rest of the world's currencies. While part of this exposure could be limited by holding commodities, an LPP fund could not survive on commodities and TIPS alone.

Do any LPP funds exist? I'd rather put cash into an LPP fund, than to let it rot in a bank account. Only I've not been able to find2 any.

2Pimco's Global Advantage Inflation-Linked Bond Strategy Fund (NYSEARCA:ILB) purports to, however since it holds long duration bonds, any rate increases not matched fully by inflation increases will negatively impact purchasing power.