Friday, May 27 2022

A trader works on the floor of the New York Stock Exchange (NYSE) in New York, March 30, 2022.

Brendan McDermid | Reuters

For stock market investors wondering how to ride out the worst bout of inflation in four decades, fret not and stay the course, according to Nick Maggiulli, chief operating officer at Ritholtz Wealth Management.

The prices consumers pay for everyday items jumped 8.5% in March, the highest levels since the beginning of the Reagan administration. Inflation reduces the real value of investors’ capital and investments. It could also make future corporate earnings less valuable today and lead to higher interest rates.

However, Maggiulli thinks investors are better off investing continuously over time rather than changing their strategy based on macro pictures. His new book “Just keep buying” is a data-driven guide to personal finance and investing.

“You shouldn’t try to time the market for high inflation or an inverted yield curve,” Maggiulli told CNBC. “Trying to time the market is usually a wild ride so to speak.”

In fact, higher than usual inflation does not have a material impact on stock performance. The median inflation-adjusted return of U.S. stocks in 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), said Maggiulli.

Still, soaring price pressures have become a major concern for many notable investors on Wall Street. Seth Klarman of the Baupost Group has previously said inflation poses a “real danger” to markets. Late last year, billionaire hedge fund manager Paul Tudor Jones called inflation the “#1 problem facing Main Street investors” and the “most significant threat” to financial markets. and the economy.

Maggiulli said investing is an effective way to fight inflation. Indeed, he gave an example in his book of how investing can help offset inflation to preserve and grow wealth.

For example, from January 1926 to the end of 2020, $1 should have risen to $15 to keep up with inflation. If you had invested $1 in long-term US Treasuries in 1926, it would have grown to $200 (13 times higher than inflation) by the end of 2020.

Moreover, if you had invested $1 in a large basket of US stocks in 1926, it would have grown to $10,937 (729 times more than inflation) during the same period, according to Maggiulli.

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