markets
Stocks hedge inflation only partly
The rule
Over the long run, stocks beat rising prices better than cash or bonds, but only partly and not always. Do not lean on them alone.
Where it flips
But fearing this weakness can push you into cash, which rising prices erode for sure. The fix is to hold stocks for their long-run edge while spreading your inflation defence, not to drop them.
Companies can raise their prices and grow with the economy, so stocks tend to outpace rising prices over long stretches. But not smoothly, and not always, especially if bought expensive or during a price shock. Hold stocks for the partial protection they give, while spreading your defence across other assets too, rather than trusting stocks alone.
A worked example
Over decades, Haridya's stock SIP comfortably outpaces rising prices. But in one high-inflation stretch, her stocks fall in real terms for years. They helped over the long run, yet were no perfect shield. [illustrative]
How to spot it
- ·stocks trusted as a sure cure for rising prices
- ·no defence beyond stocks
- ·leaning too much on a partial, uneven shield
Benjamin Graham · The Intelligent Investor