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Inflation causes the value of your investments to increase, so it hurts the people who rely on cash more than people with stock portfolios
by iopq 10y ago
Inflation causes the value of your investments to increase, so it hurts the people who rely on cash more than people with stock portfolios
- cmdrfred 10y agoI'm not sure that is going to be true of the stock market. Many firms now have record cash holdings[0] so by buying stock you are essentially buying a slice of a pile of money. I argue the reason many firms stock price keeps going up hasn't been a rise in demand but instead a limit on supply as stock buybacks are also at record levels[1]. [0]http://mobile.nytimes.com/2016/01/24/magazine/why-are-corporations-hoarding-trillions.html http://mobile.nytimes.com/2016/01/24/magazine/why-are-corpor... [1]https://hbr.org/2014/09/profits-without-prosperity https://hbr.org/2014/09/profits-without-prosperity
- dragonwriter 10y agoInflation doesn't cause the real value of investments to increase, because the real value is the nominal value relative to general prices (and inflation is increase in general prices.)
- iopq 10y agoThat's true in the general sense, but low interest rates lead to higher inflation AND better stock market performance. So having lower interest rates benefits people with stock market portfolios and hurts people who have mostly cash.
- tormeh 10y agoBond returns are fixed, I think. So even though inflation is fine for stock investors it's bad for bond investors.