How is the Current Inflation Affecting Our Portfolio?

September 08, 2022

How is the current inflation affecting our portfolio? We go over historical data to dive into this concept.

Full Transcript:

Hello, welcome to Arista Advice! Question of the week is: "Paul, how's the current inflation affecting our portfolio?" Here at Arista Wealth we don't get into forecasting and predicting the future. But we do like to have wonderful economic data and asset class returns to always visit and discuss. We rely on this historical precedent and future probabilities to guide our investment decisions, so let's go back and use history as a guide.

JP Morgan went all the way back to 1980 and looked at all of the different asset classes that exist and stress tested them, if you will. They had four scenarios. First category was high and rising inflation that was 10 occurrences since 1980. The second set was high and falling inflation. Those were six occurrences since 1988. The third was low and rising inflation, and that was four occurrences since 1988, and the fourth is low and falling inflation, and that was 13 occurrences since 1988. They then looked at the performance for a variety of these asset classes in these environments. And what they found was that nearly every asset class recorded positive performance, regardless of the inflation environment.

In other words, while every time period is different, the historical record seems to indicate that worries about inflation are a bit overdone. The media has a lot of people wound up, and it's an important topic, but let's keep everything in perspective. JP Morgan's done the data. They've done the research and out of all four different scenarios, all asset classes fared well, at, before, during, and after going all the way back to 1988. The Federal Reserve will do their job. We're reading and constantly monitoring and watching the economic and the capital markets, and it's important to just keep everything in balance.

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