Feb 21, 2022  | Tags: wealth management

Will Inflation Hurt Stock Returns? Not Necessarily.

Investors may wonder whether stock returns will suffer if inflation keeps rising. Here's some good news: Inflation isn't necessarily bad news for stocks.

• A look at equity performance in the past three decades does not show any reliable connection between periods of high (or low) inflation and Australian stock returns.
• Since 1991, one-year returns on stocks have fluctuated widely. Yet the weakest returns can occur when inflation is low, and 24 of the past 31 years saw positive returns even after adjusting for the impact of inflation.
• Over the period charted, the ASK 300 posted an average annualised return of 7.65% after adjusting for inflation.

History shows that stocks tend to outpace inflation over time — a valuable reminder for investors concerned that today’s rising prices will make it harder to reach their long-term financial goals.

 

*Source: Dimensional Fund Advisors

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This is general advice only and does not take into account your financial circumstances, needs and objectives. Before making any decision based on this document, you should assess your own circumstances or seek advice from a financial adviser and seek tax advice from a registered tax agent. Information is current at the date of issue and may change.