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Stagflation and your money

June 28, 2022

If we’ve learned anything over the last few years (or decades) it’s that the media is really good at scaring us. The current trend to be scared about is the idea of stagflation.  

I double-checked with the CDC, and while we don’t need to wear masks to help beat stagflation, there IS a “vaccine” to help beat it. The “vaccine” is a healthy dose of the equities markets! But, what is stagflation? According to the Oxford dictionary it is, “persistent high inflation combined with high unemployment and stagnant demand in a country’s economy”. So at its core, stagflation is a really bad economy. The media and some economists believe that we are either currently in a period of stagflation or we are headed in that direction. 

What does this mean for your balance sheet?

In this post, I will focus on one area of your balance sheet, your stock portfolio. While some in the media will tell you stagflation means your returns are going to be zero at best, we just simply can’t believe everything the media tells us. A quick Google search about 1970’s stagflation will lead you to articles and videos suggesting that there was a flat or negative stock market during that time.  

This isn’t true. It’s not even true if we price in the cost of the consumer price index. For instance, from 1973 to 1980, the consumer price index averaged 8.2%. Over the same time period, the S&P500 rose about 3% (Source: S&P500 index). So, with that one data point alone, you lost money.  However, as a client of mine, you know the SP500 index is not THE market… it is only ONE market.  What about small cap US stocks in the same time frame?  During the same time frame, the small cap US stocks rose 16% ( Source:Ibbotson small stock index). And US small value stocks rose almost 18%! ( Source: Fama/French small value research index).

Do we want Stagflation? The answer is, NO. We want a robust economy where everyone does well financially. We want better paying jobs with large salary growth. We want low taxes and free markets to deliver excellent investment returns for equity investors. The worry that it is inevitable that you will lose money during a poor economy in your stock portfolio is rarely true. Stocks in any given year may be up or down. However, with a well diversified portfolio in many different markets and in many different countries, history tells us you will make good returns NET of inflation if you simply stay the course.

Should you be afraid of inflation or stagflation? Not necessarily. The better question is, have you built up your cash holdings in cash value of life insurance, savings and other assets? If yes, then you can keep your equities invested in the markets. Therefore, not only are you ok in uneasy economic times, but positioned to potentially do quite well.

So, what is the simple take away when it comes to stagflation? Keep your savings rates high, your liabilities low, and during questionable stock years, continue to allow us to rebalance during poor stock years into all the available markets. Ultimately, let time do the work for you.

Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 5280 CARROLL CANYON ROAD, SUITE 300, SAN DIEGO CA, 92121, 619-6846400. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. WESTPAC WEALTH PARTNERS LLC is not an affiliate or subsidiary of PAS or Guardian. Insurance products offered through WestPac Wealth Partners and Insurance Services, LLC, a DBA of WestPac Wealth Partners, LLC. CA Insurance License Number – 0L49687.| Guardian, its subsidiaries, agents, and employees do not provide tax, legal, or accounting advice.  Consult your tax, legal, or accounting professional regarding your individual situation. | 2023-158307 Exp. 07/25

Indices are unmanaged, and one cannot invest directly in an index. Past performance is not a guarantee of future results. All investments contain risk and may lose value. Equities may decline in value due to both real and perceived general market, economic and industry conditions. Investing in securities of smaller companies tends to be more volatile and less liquid than securities of larger companies. Investing in foreign securities may involve heightened risk including currency fluctuations, less liquid trading markets, greater price volatility, political and economic instability, less publicly available information and changes in tax or currency laws. Such risks are enhanced in emerging markets.  The Consumer Price Index examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care and is a commonly used measure of the rate of inflation.  S&P 500 Index is a market index generally considered representative of the stock market as a whole. The index focuses on the large-cap segment of the U.S. equities market.

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Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). OSJ: 5280 Carroll Canyon Rd, Suite 300, San Diego, CA, 92121, 619-6846400. Securities products and advisory services offered through PAS, member FINRA, SIPC. Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. WestPac Wealth Partners LLC is not an affiliate or subsidiary of PAS or Guardian. Insurance products offered through WestPac Wealth Partners and Insurance Services, LLC, a DBA of WestPac Wealth Partners, LLC. CA Insurance License Number - 0L49687. Securities products and advisory services offered through Park Avenue Securities LLC (PAS), member FINRA, SIPC.  (619) 684-6400. PAS is a wholly-owned subsidiary of The Guardian Life Insurance Company of America® (Guardian), New York, NY. CA Insurance License #0L49687 | Terms of Use | Online Privacy PolicyImportant Disclosures |  2023-158307 Exp. 08/25