Understanding Inflation

David Booth (Executive Chairman and Founder of Dimensional Fund Advisors) and Eugene Fama, Ph.D. (Nobel laureate, Director and Consultant to Dimensional) sat down earlier this month to discuss inflation.  Here are some key takeaways. 

Predicting Inflation

  • Inflation “spikes” tend to persist for long periods of time.  This accounts for the highs and lows of inflation.
  • We have not experienced high to moderate inflation for at least 10 years.

Inflation and How it Affects Financial Goals

  • Retirement Goals should ALWAYS take a long-term perspective.  Forget the short-term as it pertains to retirement.
  • Your retirement portfolio should properly align with your risk tolerance, timing, and overall plan.
  • We can mitigate inflation risk by owning Treasury Inflation-Protected Securities.
  • Have a plan and review the plan as necessary.  CDs 40 years ago provided a 15% coupon; today, you might get less than 1%.

In closing, Booth and Fama touched on a statement most of us know but sometimes (maybe) we don’t always follow, and that is “control what you can control”.  We cannot control the markets but we can control how we are invested, diversified, etc.

If you would like to discuss your current diversification, you can use this link to schedule a call.

For the entire transcript on Booth and Fama’s conversation, click here.

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