Chapter 10 · Mission 7 · 2020–2023
The return of inflation
Inflation can come back after decades of being low, often after large government spending, supply shocks or energy price jumps.
Goes with Mission 7: The return of inflation.
The idea
In short
- 1Inflation can come back after decades of being low, often after large government spending, supply shocks or energy price jumps.
- 2Central banks answer with fast rate rises, which hit bonds and stocks at the same time.
- 3Diversification has limits: stocks and bonds usually help each other, but when inflation and rates rise together they can both fall.
- 4Cash and the money market lose purchasing power while rates are below inflation, and start paying again when rates catch up.
- 5Real assets (homes, some commodities) and stocks can protect you from inflation over long periods, but not every year.
In the data
What history shows
US inflation, year by year, 1928–1949
Real data, January 1928 to December 1949: years before any mission, so nothing is given away. Monthly returns from Robert Shiller and Aswath Damodaran.
Real figures
The numbers
Finish Mission 7 to see these real figures.
Finish Mission 7 to see these real figures.
Remember
Takeaways
Finish Mission 7 to see the takeaways.
Practice, not scored
Quiz
Finish Mission 7 to see this question.
2. Does a stocks-and-bonds mix always cushion a fall?
Finish Mission 7 to see this question.