Welcome to the May edition of FAQs and RAQs!
Here we answer client questions—some asked Frequently, others Rarely.
FAQ: Inflation was coming down, but now seems likely to stay high. Is there something we should do?
That depends on your frame of reference. The latest CPI reading showed a 2.4% year-over-year increase, according to the Bureau of Labor Statistics. That’s higher than the 2.1% average of the past 15 years, but actually below the 65-year average of 3.1%.
We wouldn’t be surprised to see inflation drift closer to that long-term average. One big reason: globalization, which helped hold inflation down for decades, is slowing or even reversing. New trade barriers may keep inflation more elevated than in the recent past.
The good news?
Over that long time period, the stock market helped investors build purchasing power despite inflation. We expect that to continue.
One caveat: while stocks are a solid long-term hedge against inflation, they don’t tend to protect well against sudden surges like we saw in 2022. On the flipside, assets like commodities can hedge against those sharp jumps, but often aren’t great at compounding wealth over time.
Our view: It’s difficult to “time” inflation. Be patient, and let the market work for you over the long run.
RAQ: Should I invest in [fill in the blank with latest speculative, hard-to-value asset]?
We usually get this question from investors looking to put some “play money” to work. It can be a tough question. These assets are often hard to value.
Here’s a fun way to think about it. There’s a thought experiment from Ancient Greece called the “Euthyphro Dilemma”:
Does God love something because it’s good?
Or is it good because God loves it?
This question has been keeping thinkers busy for millennia! Now apply it to investing, especially in assets where value is unclear.
Are people buying it because it has value?
Or does it have value only because people are buying it?
Big difference!
If it’s the former, maybe there’s potential for a small slice of your speculative dollars. If it’s the latter… probably not!
Have a question? Drop us a line at carlsongroup@rwbaird.com. We'd love to hear from you!
All investments carry a level of risk, including loss of principal. PAST PERFORMANCE DOES NOT PREDICT FUTURE RESULTS.