If you’re old enough to remember the 1970s, you may recall the daily anxiety experienced by millions of Americans driven by inflation. It seemed like every other day, the price of the basic products of life inched higher and higher. From bread and milk to gasoline and medical care, costs were on an upward trajectory.
Complicated changes in the global economy flattened inflation beginning in the 1980s. Exactly why that happened would require a book-length document to explain completely. Suffice it to say that inflation is not something Americans have had to worry about for decades.
However, there are growing concerns that inflation may be back today. For example, the May 2021 report issued by the Bureau of Labor Statistics has raised alarm among economists. The inflation rate jumped 4.2% in April of 2021 when compared to the previous 12 months. It was the fastest rate of increase since 2008.
Again, we won’t go into the complex reasons why inflation may be showing signs of coming back into our lives now. This is a good time, however, to consider options for your investment dollars to protect your assets and positions from the ravages of inflation if it should reassert itself.
Buying and holding stocks over the long term may be among the best ways to protect your money in an inflationary era – just the opposite of what many people are doing.
Paul Geddes founded the Aperio Group, an investment management firm for which he served as CEO. He said a lot of people are pulling their money out of stocks and putting them in rock-solid financial instruments, such as bonds or cash. But these are actually the most vulnerable to inflation, Geddes warned. That’s because bonds yield low rates of interest and cash does nothing at all. That means that inflation can basically “eat them alive.”
It’s far better to put money in stocks because they are an asset class that can adjust to an inflationary environment. Furthermore, Geddes said it’s a good idea to choose “broad and boring” index funds that have shown the ability to mirror the overall performance of the market.
Even in inflationary times, the overall stock index has continued a relentless upward trend, overcoming occasional setbacks over long periods of time. That means 20 years, or so, in terms of your investment strategy.