Category: Investments

Talking about this topic is tricky because inflation can be caused by many, many things. However all these things which may cause inflation and characterized in a simple way which is by either 1) the rate of increase or 2) a root cause. 

With that being said let’s get into the topic and talk about some of the factors which may cause inflation.

Pandemics 

Since the time the Covid pandemic began the inflation went through the roof especially with gas and electricity prices. 

This is because people were staying at home, there were lockdown, there were shortage of employees which leads to people not being able to function as normal. Shortage of employees means that everything will take longer especially for the packages and goods to arrive to you or to the stores. This means that there are less products in the store and the price of the products which are in store will go up.

Reflation

This is one is about the way curb deflation. This happens when a government purposely stimulates the economy by increasing the money supply or even the government spending.

An example of this we have seen in the US during the Covid pandemic. 

However the reflation can as well happen when a government lowers interest rates. Which means that this one is really tricky.

Deflation

This one is the opposite of inflation.

And the whole idea of deflation is a drop in prices of goods and services. But also deflation talks about a negative inflation rate.

Cost-push

This one is a very common factor of inflation because this one happens when the price  of the production of different goods as well as different services go up (increases). This lead to the prices being pushed even higher.

This mostly happen when the prices of a material or the prices of labor goes rises. 

Creeping

This one when the mild inflation happens in a couple of years in a row.  The inflation is sometimes so low that you barely notice it but when the low inflation grows throughout couple of years the prices will hit you hard. 

Just as if you were increasing the warm temperature in your house by 1 or 2 degrees every hour. You won’t notice it at once that the temperature is getting warmer but after couple of hours with increasing 1 or 2 degrees every hour you will notice the the temperature. 

Hyperinflation

This one is about the extraordinary high or low inflation which is spiralling out of control. It might be 1% a year or over 1,000% a year.

Stagflation

This one is about a high inflation when an economic downturn takes place. 

A good example here would be again the beginning of the Covid pandemic. 

Demand-pull

This one is also a very popular cause of inflation. And this one is all about the point in time when the demand for goods and services out run the time which it takes to produce these goods or services. This leads to the prices of these goods and services to increase.

Trotting Prices

This one happens when the prices are risen moderately. But the yearly inflation rate stays in the single digits.

If you see this happening then be warned that the inflation which will slap you in the face might be around the corner. 

Galloping Prices

This one takes place when the costs increase significantly into the double digits. Often when the costs rise above 10% a year.

Disinflation

This one is the last one we will talk about. And takes place when a the rate of inflation is falling. Or even when the slowdown moments in the prices of goods and services takes place

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Now on days it feels like everyone talks about inflation but not everyone understand what it really is. So that’s why we are bringing forward this topic on this website to talk about it and to clear out the topic for these people who might struggle with understanding what inflation really is.

The best and easiest way to explain inflation is basically to say that it is a rate which the whole price of everything like services and goods increases in prices.

The result of the inflation is the buying power and value of money decreases over the years. 

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The reason why the inflation matter is because it has an huge impact on the price of everything. 

It is important for you to understand what it is. Because it isn’t just a word the politicians like to use. 

It seems like everything was cheaper in the past but believe it or not people earned less than we do today. 

The price of Coca-Cola is a good example here because it has increased twelvefold since the company of Coca-Cola was created in 1886. And thats why the saying “I remember when a soda pop only cost me a nickel” is so popular when it comes to the elderly members of every society. When the elderly folks say this they mean the inflation is getting higher and higher.

The reason why inflation matter so much is because the inflation affects the prices of everything no matter if it is cars, real estate, groceries, electronics, bills to pay etc.

Following how the inflation is going can help you a little bit to make the decisions about your money no matter if we are talking about making decisions now or in the future.

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Everyone at some point wants to make money from their investments in the stock market. And that’s why we are talking about this topic.

TakeAway 1) Try To Temper Your Enthusiasm When The Good Times Come.

As you might know the market will go up, and when it goes up then it means that you are making money.

But when these good times comes you gotta keep in mind that in the future will be less bright. 

TakeAway 2) Become More Optimistic If The Bad Times Comes.

When the down time comes as it often does then you should cheer up because the market will go up at some point in the near future.

And it is important to stick out the bad times because the brighter times will come soon enough.

TakeAway 3) You Can Get Average Return If You Only Buy And Hold.

It is important for you to know that if you sell and buy and don’t hold anything for a long period of time then you expect to earn less. 

This is because the commissions and taxes will eat up much of your returns. And sometimes you can also very poorly time the trades and the market. which means that you wont earn as much as you would want.

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You gotta keep in mind that there aren’t no guarantees in the market. But when it comes to the 10% average return it has been held remarkably steady for a long time.

The thing which we cant expect pretty much depends a lot on what is happening now and what have happened in the very recent past. 

But the rule to keep in mind is that the higher the recent returns are, the lower the future returns will be. And vice versa.

For the most part if you are estimating how the stock-market investment will return over time the best thing to do will be to use the 6% of average annual return in that why you wont be too depressed if one year the stock market takes a dive just as the beginning of this year.

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When the average Stock Market Return might be around 10% you gotta know that the returns every year might be very far from the average.

When you look at the years between 1926 and 2014. Then you will see that the returns in these years were from 8% to 12% only in 6 different years. And the rest of that time the “average” returns in the stock market have been much lower or much higher than the 8% to 12%.

Even when the market is unstable the returns tend to be somehow positive in a given year.

As you might expect it doesn’t go up every year but over the time as the years go on you will see that the market has gone up in about 70% of years.

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And finally it time to talk about the famous S&P 500 when you take in the topic of the average returns. But let’s get into the topic.

Most graphs today shows that the current value of the mighty S&P 500 is on 4326.51 (at the time of writing).

Of course the value of it goes up and down all the time so don’t take anything for granted when it comes to the value in the stock market because you never know with it nor where it will go.

However between 1990 and today you can very clearly see that there have been a lots of up years and a lots of down years. 

But over let’s say 30-year period all those fluctuations have averaged out as a positive return.

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When we are talking about the “Historical Average Of The Stock Market Return” we need to also talk about the S&P 500.

S&P 500 for these of you who don’t know is basically a form of investing index fund which comprises about 500 of America’s largest publicly traded companies. But S&P 500 is also considered to be the benchmark measure for annual returns.

The entire stock market is centrated for the long-term investments. Long-term investments means a period which is longer than 5 years. 

But if you are interested in the short-term investments you would want to consider very highly to choose lower-risk options. At the same time you would want to expect as well to earn a somehow lower return. 

And if you try to follow what investors say you may get a little bit confuse because when they say “the market” then they mean basically the S&P 500.

When it comes to the percentage of the stock market return then the 10% is just a number before the inflation.

Investors now on days expect to lose  purchasing power of around 2% to 3% every year due to inflation

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This is a very popular question when it comes to the beginners in the investing world. And that’s why we are gathering on this website to talk about this today. 

The easiest way to explain what the average stock market return is to follow the history of the stock market and say that the average stock market return is around 10% annually before inflation of course if we follow the history. 

However you need to keep in mind that the stock market returns are very, very vary greatly. This means that one year the return may be 50% but in the next two year it may be only 5%.

For almost the whole last century the average stock market was and still is about 10% per year.

When it comes to the mighty S&P 500 then it’s important to mention to say that it is  often considered the benchmark measure when it comes to the annual stock market returns.

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