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Link search: the effect of inflation on investments - Input Junkie
September 3rd, 2011
11:23 am


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Link search: the effect of inflation on investments
A day or two ago, I found a link to a short article claiming that if you allow for inflation, neither the stock market nor real estate are especially good investments over the long term.

A CPA I know would like to take a more careful look at it, but I can't find the damned thing.

Unfortunately, my detailed memories are either visual or abstract, and google isn't much good for either. The graph lines were red and blue (there's a different article which included green), there wasn't a mention of a tweaking to affect the numbers, the page was minimal black text on white with blue links, and the feel was close to prophet crying in the wilderness but not necessarily crackpot.

If google could do anything useful with a description like that, it probably would have solved natural language. Either that, or it would do a better job of tracking where I've been than I can.

Meanwhile, here's a different article on the subject.

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(4 comments | Leave a comment)

[User Picture]
Date:September 3rd, 2011 09:41 pm (UTC)
LOL! That's how I remember things, too.
[User Picture]
Date:September 3rd, 2011 10:58 pm (UTC)
According to what I've read, though I can't recall the specific sources:

Real estate is not a good investment in general. You can win in some areas (e.g., many have built a fortune by buying and improving commercial real estate or rentals, but that's work, not just speculating). But if you look at long historical trends, basically, you come up with "you buy a house and live in it and your kids get to inherit it", i.e., it's a way to pass on wealth between generations. The only time people were talking of houses as 'investments' was during the insane bubble, when investors needed to keep the Ponzi scheme going, so they needed the next sucker in line to buy buy buy.

The stock market has consistently beaten inflation for every 20 year period over the last *mumble* years (I think 70-80), and not by a little--IIRC it's about 3-5% higher. If you're in for less than 20 years, when you sell you might be forced to sell at a loss, but after about 20 years things even out. You can check this by tracking, say, the S+P 500 for yourself (and assuming that as an investor you'll be within a few points of the S+P over time).

Edited at 2011-09-03 10:58 pm (UTC)
[User Picture]
Date:September 4th, 2011 06:55 am (UTC)
No idea what the article is, but it would depend on what they used as "inflation" which varies widely and using a historical average can vary as well. I'm still a CPA but I'm also a former CFP and had a few finance courses. It would be relatively easy to show that the "real" rate of return is small in such an article.

The point is, what's the alternative? What earns more?

And yes, what was said above about the stock market beating inflation. That's supposed to be the whole point about how interest rates are calculated in an open market where they aren't artificially adjusted (which the gov't used to do long ago).

[User Picture]
Date:September 4th, 2011 07:25 am (UTC)
An article on MSN reduced the stock market return to a very small amount by removing the dividend rates from the calculations. This was supported by saying "research shows most people spend dividends." And they said that one should also remove taxes and commission costs. So it's possible the article you're looking for did that to get its results for stocks.

Personally, I reinvest the dividends. That's how compounding works.
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