Concerned about inflation? Here’s why stock investors should stay the course, says Ritholtz COO
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Trader working on the New York Stock Exchange floor (NYSE), New York, 30 March 2022.
Brendan McDermid | Reuters
If stock investors are worried about how to survive the worst inflation for over 40 years, Nick Maggiulli is chief operating officer at Ritholtz Wealth Management.
The prices consumers paid for daily items have risen a whopping 8.5% in MarchThis is the highest level since the Reagan Administration’s early years. Inflation chips away at the real value of investor capital and investments. Inflation could make future profits of companies less valuable and result in higher interest rates.
Maggiulli is convinced that investors will be more successful if they continue to invest over time, rather than changing strategy based only on macro views. Maggiulli’s new book “Just Keep Buying”It is an data-driven guide for personal finance and investment.
Maggiulli stated to CNBC that it is not a good idea to try and time the market due high inflation or yield curve inverse. It is often a foolish endeavor to try to predict the markets, Maggiulli said to CNBC.
Higher-than-usual inflation does not have a significant impact on equity returns. The median inflation-adjusted return of U.S. stocks over the two years following periods of high inflation was nearly identical to the two-year return following periods of lower inflation (18.5% vs.18.7%, respectively), Maggiulli said.
However, Wall Street’s soaring prices remain a concern to many Wall Street investors. Baupost Group’s Seth Klarman Heard previously that inflation is a real danger to the markets. Billionaire hedge fund manager Paul Tudor Jones late last yearAs inflation, the “No. Main Street investors face the #1 issue and “single biggest threat” to the financial markets.
Maggiulli claimed that investing is a good way to counter inflation. In fact, Maggiulli gave an illustration in his book on how investing can offset inflation to preserve or grow wealth.
In order to maintain inflation at par, $1 should have grown from January 1926 to December 2020 to reach $15. You would be able to invest $1 in U.S. Treasury long-term bonds by 2026 and it will grow to $200 at the end of 2020. This is 13 times higher than inflation.
Maggiulli claims that $1 invested in U.S. stocks would have grown into $10,937, 729 times higher than inflation.
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