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Bonds yes, stocks are weird though because as you mentioned inflation can cause draw downs but it also has upward pressure as well do to rising prices of assets
by devman0 5y ago
Bonds yes, stocks are weird though because as you mentioned inflation can cause draw downs but it also has upward pressure as well do to rising prices of assets at large. Value stocks (firms with "now" cash flows), I believe tend to do well in an inflationary environment, verses growth (firms with "future" cash flows) stocks.
- anm89 5y agoRight, future earnings are discounted by interest rates meaning if you're a company whose earnings are heavily weighted towards the future, ie a growth stock (think startups who lose money but have huge valuations based on potential future earnings), you can get decimated by rate rises. On the other hand, if you are a consumer goods stock paying a dividend, your value is much more based on the cash you can generate right now and you aren't particularly susceptible to future discounted cash flows affecting your valuation.