Do you expect inflation?

[celerystalks]

Glod!!!

-W

Did someone say gold? Don’t knock it ‘til you’ve tried it.

[waltworks]

I'm sticking with condoms and ammo.

-W

[dragoncar]

As a child of the seventies, I always expect and plan for inflation. Our weapons: a Defined Benefit Pension that includes COLAs, mortgaged rental properties, and an equity heavy portfolio. And mad mustachian skillz.

It's worth pointing out that while the 1970s are regarded as a painful economic period, the average inflation rate in the US averaged a mere 6.8% by official statistics. This is, nothing. This is the standard rate in many developing and emerging markets. If the inflation genie really escapes then there is the potential for much higher inflation than the so-far worst documented period in our developed markets.

One of the worst mistake that you can make as an investor is to think that future events can never exceed historical precedence. I would suggest in the case of inflation, if the policy makers get it wrong, the risk is there that we can exceed it by very great amount.

Averages smooth spikes, making inflation seem less dramatic than it actually was. Your point that 6.8% isn't as much as it could be is valid, but most people on this site have never experienced even that level in their lifetimes. That's yet another reason that compound interest is so powerful, along with long, low fixed rate mortgages. We might be singing different verses, @vand, but it's the same song.

Does inflation volatility matter?  If it’s +15 one year and -15 the next year that’s an average of zero(ish) but it seems like it would still cause pain and uncertainty

[BicycleB]

I think it does.

Before we had a Federal Reserve, inflation ebbed and flowed - was negative sometimes. If I understand correctly, these shifts were a big part of the repeated, deep recessions that kept occurring. Rumor has it the Wizard of Oz was written in part to complain about such whiplash, or something related to it (yellow brick road = gold; part of the means used to try controlling inflation / deflation). I've read that the Grange, a huge populist movement like a farmer-led left wing Tea Party, emerged in response to deflation crushing farmers in late 1800s. Anyone with a mortgage would get hit hard in a serious deflation. One year wouldn't do it, but historically the trends were more like 5 to 20 years at a time IIRC.

[Dicey]

As a child of the seventies, I always expect and plan for inflation. Our weapons: a Defined Benefit Pension that includes COLAs, mortgaged rental properties, and an equity heavy portfolio. And mad mustachian skillz.

It's worth pointing out that while the 1970s are regarded as a painful economic period, the average inflation rate in the US averaged a mere 6.8% by official statistics. This is, nothing. This is the standard rate in many developing and emerging markets. If the inflation genie really escapes then there is the potential for much higher inflation than the so-far worst documented period in our developed markets.

One of the worst mistake that you can make as an investor is to think that future events can never exceed historical precedence. I would suggest in the case of inflation, if the policy makers get it wrong, the risk is there that we can exceed it by very great amount.

Averages smooth spikes, making inflation seem less dramatic than it actually was. Your point that 6.8% isn't as much as it could be is valid, but most people on this site have never experienced even that level in their lifetimes. That's yet another reason that compound interest is so powerful, along with long, low fixed rate mortgages. We might be singing different verses, @vand, but it's the same song.

Does inflation volatility matter?  If it’s +15 one year and -15 the next year that’s an average of zero(ish) but it seems like it would still cause pain and uncertainty

I agree with BB's point, but also that the average doesn't reflect the way the peaks or valleys feel. It was pretty shocking at the time, but looking at the averages, it doesn't seem as wild as it actually was. It wasn't South American Country style inflation, but it was dramatic. I remember a lot of folks were panicked as hell over it.

OTOH, I was queen of the double-digit interest paying CD's for a time. I think it wasn't necessarily the best move, partly because I was able to avoid actually learning how to invest for a very long time. I know I had more than one CD paying 15% or more for 30 months or longer. With returns like that, who needs to learn about the stock market?

[dragoncar]

OTOH, I was queen of the double-digit interest paying CD's for a time. I think it wasn't necessarily the best move, partly because I was able to avoid actually learning how to invest for a very long time. I know I had more than one CD paying 15% or more for 30 months or longer. With returns like that, who needs to learn about the stock market?

Any long bonds?  I can’t imagine how amazing it would be to have 30 year treasuries at 15%

[Dicey]

OTOH, I was queen of the double-digit interest paying CD's for a time. I think it wasn't necessarily the best move, partly because I was able to avoid actually learning how to invest for a very long time. I know I had more than one CD paying 15% or more for 30 months or longer. With returns like that, who needs to learn about the stock market?

Any long bonds?  I can’t imagine how amazing it would be to have 30 year treasuries at 15%

Dunno, I was saving my ass off so I could buy my first house. Took me a while, but I did it.

[Retire-Canada]

With returns like that, who needs to learn about the stock market?

What was the return after inflation?