What Inflation Does To Stock Market Investments

Image Source: Markus Winkler on Unsplash

Here is a chart of historical stock market data that, unfortunately, may be of increasing relevance. Please note the following:

• From 1929 to 1949, the Standard and Poor's 500 Index, measured in inflation-adjusted terms, went from 545 to 193, losing over half its value in a 20-year period.  

• From 1968 to 1982, the inflation-adjusted index went from 957 to 359, again losing over half its value.

• From 2000 to 2009, the inflation-adjusted index went from 2860 to 1226, once again losing over half its value.

The good news is that, over the broad span of history, stock prices, even in inflation-adjusted terms, have been in a bull mode, rising over 15-fold since 1982. The bad news is that there have been significant declines along the way that hurt investors near retirement.

Since 2009, the Index has risen over five-fold in inflation-adjusted terms. Now we see rising oil prices and signs of rising inflation and the beginning of slower growth. We see long-term rising debt in the economy.  

History teaches us that we may be entering a period in which the return of our assets becomes as important as the return on our investments.