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Inflation Does Not Harm Investors

Inflation Does Not Harm Investors

July 27, 2023

Inflation is not bad for investing, writes Peter Watson.

There is a relationship between investment returns and inflation. Stock market returns in the United States, as measured by the S&P 500 index, posted an annual return of 10 per cent over the last 30 years.

Inflation during that same period, as measured by the US Bureau of Labor Statistics, was three per cent annually.

Investors  received an average 10 per cent return but loss three per cent of purchasing power caused by inflation. The result is an investor had a real return of seven per cent after adjusting for the loss of purchasing power caused by inflation.

A word of caution that the stock market has done well but all investors do not, depending on how they invest and their costs including fees.

Many investors would be comfortable investing to receive a seven per cent “real” return after accounting for inflation. Unfortunately, looking at average returns does not account for some years that had a poor investment return result.

Last year stock market returns were particularly bad. Many investors lost a significant amount of money while at the same time higher than normal inflation meant their purchasing power diminished.

Investing in stocks some years can be very good, however, unfortunately some years like 2022 can be very bad.

In 22 of the last 30 years the US stock market had positive returns after accounting for inflation.

Inflation can harm consumers. Investors on the other hand have a long history of making money.

Peter Watson is registered with Aligned Capital Partners Inc. (ACPI) to provide investment advice. Investment products are provided by ACPI. ACPI is a member of the Investment Industry Regulatory Organization of Canada. The opinions expressed are those of the author and not necessarily those of ACPI. Only investment-related products and services are offered through Watson Securities of ACPI. Peter Watson provides wealth management services through Watson Investments. He can be reached at