What Our Clients Are Saying
Will Congress’s Recent Stimulus Cause Inflation?
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June 5, 2020As long term investors focused on building lifetime and even multigenerational wealth we have to constantly remind ourselves to extend our thinking beyond the crisis and chaos of the moment and think seriously about the long term. “Skate to where the puck is going” as Wayne Gretzky famously said.
The true enemy of lifetime, and multigenerational, wealth is not the sudden shocks of the stock market or the economy.
A truly diversified portfolio and the discipline to stay the course whatever may come has always turned bear markets into temporary phenomenon – just blips on the historical chart of unrelenting growth.
The worst 20 year time period in the S&P 500’s history is a positive 6% return! And while I can’t prove it (we can never prove anything about the future after all) I fully believe our current crises will pass in the same way.
The true enemy we long term investors have to overcome has always been inflation. Inflation silently, but powerfully, erodes the purchasing power of every dollar we have. It’s danger is in how innocuous it seems to us. But at trendline inflation of roughly 3% per year, each dollar we have will lose 26% of its value every ten years.
A 26% downturn in the stock market would get anyone’s attention.
But our money has lost value at that rate for the last 90 years and we still largely ignore inflation as a risk.
The Nobel Prize winning economist Milton Friedman famously said “Inflation is always and everywhere a monetary phenomenon”. With a $3 Trillion stimulus package already passed, talks of another $3 Trillion underway, and the Federal Reserve talking about unlimited lending to support the economy, lifetime and multigenerational investors need to at least begin thinking about the long-term, inflationary effects of these actions.
I discuss inflation in more detail in today’s video. I hope it’s useful for you and feel free to share it if you get the chance.
Remember in this time that optimism about the future is the only perspective that squares with the historical fact pattern. We will get through this and if we let it, it can make us a better nation, better investors, and better people.
Disclosure:
Tumwater Wealth Management is a registered investment adviser and may only conduct business in states where it is registered or exempt. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.
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