Finance Flash Go! Episode #87: Inflation & What It Means for Your Money!

On this episode of the Finance Flash Go! podcast, we are talking about inflation, what it is, and what it means for you and your money! It’s something on a lot of people’s minds these days. So tune in!

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Inflation decreases the purchasing power of your money each year.

It is the reason that you need to invest…and to invest wisely.

But what exactly is it and how does it affect you?

Let’s explore!

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Interesting thread on Boglehead site about whether stocks would have lower returns in the future– https://www.bogleheads.org/forum/viewtopic.php?t=349579 … I thought this post particularly was interesting:

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Nobody can predict the future. But going forward, it is basic math. If you want to exceed 4-5% nominal return for stocks, then at least one of the following has to happen.

PE ratios, which on a trailing basis are near all time highs, must go higher
GDP has to grow much faster than normal
earnings, which currently relative to gdp, are at historic highs, have to go even higher
dividend yields, which haven’t increased in a couple of decades, would need to increase, a lot.

Will one of those happen? Nobody knows. Can one or more happen? Yes. Should you plan on those happening? Probably not.

To get to 10% annualized growth, one of the following would have to happen.

PES which are currently mid 30s would need to go over 60
real gdp would have to grow 5% or more year after year
earnings as a percent of GDP would have to roughly double
dividends would have to double or triple.

Or…a combination of some of those.

Why did markets go up so much from 2018? For one thing PES went from 28 to 36.

https://www.multpl.com/shiller-pe/table/by-month

Earnings / gdp went from 0.9 to 1.0 which is not far from an all time high.

https://fred.stlouisfed.org/graph/?g=1Pik

Or let’s look at the buffet indicator, stock market / gdp

https://www.longtermtrends.net/market-c … indicator/

At a ratio of 2 it is higher than last 40 years, by far. It was 1.25 in 2000. To get to 10% per year for 10 years, it would have to increase further…probably to about 3.0.

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1 thought on “Finance Flash Go! Episode #87: Inflation & What It Means for Your Money!”

Tom
May 24, 2021 at 9:41 am
Interesting thread on Boglehead site about whether stocks would have lower returns in the future– https://www.bogleheads.org/forum/viewtopic.php?t=349579 … I thought this post particularly was interesting:
>
Nobody can predict the future. But going forward, it is basic math. If you want to exceed 4-5% nominal return for stocks, then at least one of the following has to happen.
PE ratios, which on a trailing basis are near all time highs, must go higher
GDP has to grow much faster than normal
earnings, which currently relative to gdp, are at historic highs, have to go even higher
dividend yields, which haven’t increased in a couple of decades, would need to increase, a lot.
Will one of those happen? Nobody knows. Can one or more happen? Yes. Should you plan on those happening? Probably not.
To get to 10% annualized growth, one of the following would have to happen.
PES which are currently mid 30s would need to go over 60
real gdp would have to grow 5% or more year after year
earnings as a percent of GDP would have to roughly double
dividends would have to double or triple.
Or…a combination of some of those.
Why did markets go up so much from 2018? For one thing PES went from 28 to 36.
https://www.multpl.com/shiller-pe/table/by-month
Earnings / gdp went from 0.9 to 1.0 which is not far from an all time high.
https://fred.stlouisfed.org/graph/?g=1Pik
Or let’s look at the buffet indicator, stock market / gdp
https://www.longtermtrends.net/market-c … indicator/
At a ratio of 2 it is higher than last 40 years, by far. It was 1.25 in 2000. To get to 10% per year for 10 years, it would have to increase further…probably to about 3.0.
>