COVID-19 Update: Beaird Harris has shifted a significant number of our team members to work remotely.
We continue to serve and care for our clients, just as we always have, and are available by phone, video or email.

Beaird Harris will be closed on Friday, July 3rd in observance of the Independence Day holiday.

Blog

Will Inflation Hurt Stock Returns? Not Necessarily.

Tra Sullivan

Investors may wonder whether stock returns will suffer if inflation keeps rising. Here’s some good news: Inflation isn’t necessarily bad news for stocks.

A look at equity performance in the past three decades does not show any reliable connection between periods of high (or low) inflation and US stock returns.

Since 1991, one-year returns on US stocks have fluctuated widely. Yet weak returns occurred when inflation was low in some periods, and 23 of the past 30 years saw positive returns even after adjusting for the impact of inflation. That was the case in the first six months of 2021, too (see Exhibit 1).

EXHIBIT 1
The Real Thing
Annual inflation-adjusted returns of S&P 500 Index vs. inflation, 1991–2020

Past performance is no guarantee of future results. Indices are not available for direct investment; therefore, their performance does not reflect the expenses associated with the management of an actual portfolio. Copyright 2021 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.

Over the period charted, the S&P 500 posted an average annualized return of 8.5% after adjusting for inflation. Going all the way back to 1926, the annualized inflation-adjusted return on stocks was 7.3%.

History shows that stocks tend to outpace inflation over the long term—a valuable reminder for investors concerned that today’s rising prices will make it harder to reach their financial goals.

FOOTNOTES

  1. 1Real returns illustrate the effect of inflation on an investment return and are calculated using the following method: [(1 + nominal return of index over time period) / (1 + inflation rate)] − 1. S&P data © 2021 S&P Dow Jones Indices LLC, a division of S&P Global. All rights reserved.
  2. 2Based on non-seasonally adjusted 12-month percentage change in Consumer Price Index for All Urban Consumers (CPI-U). Source: US Bureau of Labor Statistics.
  3. 3Year-to-date return for 2021 through June 30.

DISCLOSURES

Adapted from Dimensional’s Will Inflation Hurt Stock Returns?  Not Necessarily.

Please remember that past performance may not be indicative of future results. Different types of investments involve varying degrees of risk, and there can be no assurance that the future performance of any specific investment, investment strategy, or product (including the investments and/or investment strategies recommended or undertaken by Beaird Harris Wealth Management, LLC -“Beaird Harris”), or any non-investment related content, made reference to directly or indirectly in this blog will be profitable, equal any corresponding indicated historical performance level(s), be suitable for your portfolio or individual situation, or prove successful. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. Moreover, you should not assume that any discussion or information contained in this blog serves as the receipt of, or as a substitute for, personalized investment advice from Beaird Harris. Please remember that if you are a Beaird Harris client, it remains your responsibility to advise Beaird Harris, in writing, if there are any changes in your personal/financial situation or investment objectives for the purpose of reviewing/evaluating/revising our previous recommendations and/or services, or if you would like to impose, add, or to modify any reasonable restrictions to our investment advisory services. To the extent that a reader has any questions regarding the applicability of any specific issue discussed above to his/her individual situation, he/she is encouraged to consult with the professional advisor of his/her choosing. Beaird Harris is neither a law firm nor a certified public accounting firm and no portion of the blog content should be construed as legal or accounting advice. A copy of Beaird Harris’s current written disclosure Brochure discussing our advisory services and fees is available for review upon request. Please Note: Beaird Harris does not make any representations or warranties as to the accuracy, timeliness, suitability, completeness, or relevance of any information prepared by any unaffiliated third party, whether linked to Beaird Harris web site or blog or incorporated herein and takes no responsibility for any such content. All such information is provided solely for convenience purposes only and all users thereof should be guided accordingly.

DIMENSIONAL

The information in this document is provided in good faith without any warranty and is intended for the recipient’s background information only. It does not constitute investment advice, recommendation, or an offer of any services or products for sale and is not intended to provide a sufficient basis on which to make an investment decision. It is the responsibility of any persons wishing to make a purchase to inform themselves of and observe all applicable laws and regulations. Unauthorized copying, reproducing, duplicating, or transmitting of this document are strictly prohibited. Dimensional accepts no responsibility for loss arising from the use of the information contained herein.

“Dimensional” refers to the Dimensional separate but affiliated entities generally, rather than to one particular entity. These entities are Dimensional Fund Advisors LP, Dimensional Fund Advisors Ltd., Dimensional Ireland Limited, DFA Australia Limited, Dimensional Fund Advisors Canada ULC, Dimensional Fund Advisors Pte. Ltd., Dimensional Japan Ltd., and Dimensional Hong Kong Limited. Dimensional Hong Kong Limited is licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) regulated activities only and does not provide asset management services.

UNITED STATES: Dimensional Fund Advisors LP is an investment advisor registered with the Securities and Exchange Commission.

Share This
Share on facebook
Share on twitter
Share on linkedin
Share on email
schedule call

Schedule a complimentary call today.

We’ll help you get started and learn more about Beaird Harris.