Key insights
- The author questions why inflation is not discussed more often in the context of index fund returns. While individual stocks may experience varying impacts from inflation, the author suggests that index fund gains over the past three years may be overstated when not adjusted for inflation, leading to a less impressive real return. This implies a potentially bearish outlook on recent index fund performance when considering inflation.
Whenever I read about CD's or bonds as investment vehicles, there's almost always a mention of inflation. Especially how those investments are better than holding cash because they help prevent devaluation from inflation.
Why isn't inflation talked about when looking at index funds? At the individual stock level, inflation can have wildly different effects, but those should be fairly leveled out on index funds. The gains of the past 3 years do look amazing, and probably over inflated compared with earnings. But if you plug in the inflation of the past 3 years as well, the gains don't look nearly as good.