Let's return to the stagflation days of 1973 - 1983s and see what we can learn. Through that decade, inflation was consistently higher than GDP growth.
How did the stock market do? It (barely) kept pace with the Consumer Price Index. And it was a wild ride with extraordinary volatility.
You might wonder, how is it the stock market went up at all? Corporate earnings largely stayed ahead of inflation (until the 1980 - 1982 recession killed them). Interesting side-note: then Fed Chair Paul Volcker is credited for ending stagflation by raising interest rates sharply enough to cause a recession, during with inflation of course dropped. The pain of the recession was viewed as a small price to pay. And since 1983 (at least through 2020), inflation remained below 5% in the US. Do we expect a recession again now? We'll cover that in a future blog post.
How about real estate? Let's start with residential property: the median home appreciated exactly in line with inflation, 159% over that period. That appreciation never was negative, and was absent the kind of volatility seen in stocks.
In our next post, we'll dig more into how to diversify your real estate holdings for the sweet spot mix of low volatility / low inflation risk / strong returns.
Comments