A question that I am being asked more and more is whether we should make changes to an investment portfolio as a result of rising inflation.
The answer is mostly good news – Inflation isn’t necessarily bad news for stocks. (It isn’t necessarily good, either).
A look at the Australian share market performance over the past three decades does not show any reliable connection between periods of high (or low) inflation and Australian stock returns.
Since 1991, one-year returns have fluctuated widely. Yet the weakest returns can occur when inflation is low, and 24 of the past 31 years saw positive returns even after adjusting for the impact of inflation.
Over the period charted, the ASX 300 posted an average annualised return of 7.65% after adjusting for inflation.
What should an investor make of this? History shows that shares tend to outpace inflation over time – a valuable reminder for anyone concerned that today’s rising prices will make it harder to reach their long-term financial goals.
Inflation is not great for the weekly budget, but short-term spikes are not necessarily bad news for a long-term investor.
