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Thursday, June 18, 2015

Are STocks keeping up with Inflation?


Jus' thinkin' aloud again....
I must say that I have always been more interested in equities than in owning chunks of debt instruments, such as bonds.

But there is a looming threat called "inflation" which is something for which we may just not be prepared.
It's all well and good if our stocks are increasing in "numeric value" representing real capital gains. But if
the average loaf of bread is going to rise to $8 a loaf then, the REAL TIME VALUE of our portfolios must be re-assessed to reflect and hedge against this type of threat of inflation. Large numbers of dollars don't really mean much if it is going to cost a lot more just to get around town, buy your food and support the roof over your head. REAL increase must reflect an increase in REAL buying power....not just the dizzying knowledge of growing numbers on your investment statements.

One of the things I love about stocks, is the proverbial "drip" plans in which one can re-invest any dividends payable and they magically produce more shares to own....without any pesky commission fees.

But how is it going to affect long term investors, if the underlying stock prices do not rise with inflation and the cost of living? Is it possible that a drip will lose "real time value" simply because the share prices do not keep up with the cost of living? I am wondering if even many blue chip companies might be affected by this predicament. For a blue chip company can have a steady positive cash flow and  pay out reliable dividends and still their share price may not be rising as fast as inflation.

It's all well and good to invest long term in equities with the added cushion of DRIPS helping you to accumulate a larger portfolio, but if in the long term those equities do not represent real "BUYING POWER" in which you can tap into into your retirement years....what is the point?

Stocks have to carry clout, and the only way they will continue to carry weight in the eyes of investors, is whether they can be sold at an undetermined point in the future for real dollars,.....real dollars that buy real food, pay for real real estate, and support a decent lifestyle.

I'd be more than eager to hear your thoughts on this matter, my most intelligent readers.
God bless.

Carla