The Case For Stocks

According to Forbes magazine, higher inflation and higher interest rates have arrived, and may not run their course for some time to come. If so, investors should not lose sight of the fact that stocks have proven to be a long term inflation hedge. For example, in 1977-81 during the terrible Carter years, the United States was in the throes of hyperinflation, as prices rose 12.6% per year. And although stocks fell by 7.2% in 1977, over the next four years they gained 12.3% per year, versus 10.8% for inflation. Bonds, meanwhile, experienced price collapses of as much as 50%, placing them in negative territory for that same five-year period, even with interest payments included. Thus stocks turned out to be the better investment back then, and the same is likely to be true now as well.

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