JackoC wrote: Sat Aug 30, 2025 3:16 pm
Just saying if you’re especially worried about high inflation you’d probably want to rethink 90% stocks rather than trying to somehow address that with the other 10%. Unless willing do something pretty dramatic with the 10%
So there is in fact a case of sorts for that 10% being CCFs.
To review a little history, this paper (and others like it) had some retirement savers pretty excited about CCFs as of the mid-2000s:
https://www.nber.org/system/files/worki … w10595.pdf
This chart from the paper basically explains why:
That poor period for the real returns of both Stocks and Bonds (as defined in that paper, Stocks was S&P500, and Bonds was the Ibbotson US corporate bond index) explained why SWR rates for portfolios made up of those sorts of stocks and bonds were as low as 4%–4% real WRs starting right before that period would have come close to exhausting those portfolios past the point of no return.
CCFs were not really an investable class back then, but the authors of that paper synthesized a return series, and it showed CCFs doing WAAAAY better in that period. Enough so that even something as modest as a 10% allocation to CCFs would have significantly improved the “safe” WR going into that period. Further, the paper aruged that CCF’s basically had stock-like returns overall, an argument which critically depended on futures providing higher returns than spot prices. But they had:
If you compare these two figures, you can see how those excess returns to futures over that period landed them right around where US stocks had landed. So this seemed like a great idea.
A “funny” thing then happened. For the next 20 years or so, there were no serious bouts of unexpectedly high inflation, and actually, sometimes inflation was unexpectedly low:
And at least simple commodities futures indices started underperforming spot prices:
The authors famously wrote a paper in 2014, arguing all was still going well. But even their updated chart showed the beginning of this problem:
All this added up to CCF total returns being crushed by stock total returns after the mid-2000s, until the beginning of the unexpected inflation spike that started in mid-2020:
Now as previously noted, active and dynamic index sorts of approaches were at least sometimes doing better:
But still, “doing better” in this period basically meant barely treading water, not actually coming close to stock returns. Basically, you were looking at total returns at most like the collateral, with much higher volatility. Which is why they were bad for portfolio efficiency.
OK, so as of Vanguard’s 2019 white paper, they reported the long term (1900-2018) real return of Tbills as 0.28, Commodities as 0.39, US bonds as 1.44, and US stocks as 6.75%. So much for the equity-like returns.
They still recognized the unexpected inflation protection, but now they explained realistically, it came at a cost:
The cost of reducing inflation’s impactCommodities may offer the ability to counter unexpected
inflation, but what does it cost the investor to ”buy”
inflation coverage? Figure 7 shows the long return
history of several assets. It reveals that commodities’
long-term returns are not much different than cash,
which makes intuitive sense. Improving technology and
productivity gains constantly erode their prices,
substitution and innovation can limit scarcity gains, and
the cost of storage also has an impact. Over time,
returns do not keep up with those of the long-term asset
choices.
That being said–would 10% CCFs under this far more chaste model be a bad idea in a 1970s sort of scenario for US stocks and US nominal bonds?
Probably not! CCFs might still help.
However, we are not limited to US stocks and US nominal bonds. Ex-US stocks would also have helped in that scenario. Using TIPS instead of nominal bonds would also have helped in that scenario.
So . . . would 10% CCFs help if you used global stocks and TIPS? Maybe not so much.
Of course around here, most of the people who are invested only in US stocks and US nominal bonds are probably the least likely to even consider CCFs. Ironically, though, they are probably the exact people who should be considering them.
