Your portfolio’s stealth enemy

(click to enlarge)

The bull market in US stocks celebrated its fourth birthday in March. We can all thank Fed Chairman Ben Bernanke for the monetary stimulus-fueled rally that has now fully repaired the damage inflicted on the S&P 500 by the 2000-2002 and 2007-2009 bear markets. Including dividends the S&P 500 has climbed 37% since its 2000 high. So why aren’t investors feeling richer? In a word, inflation – the hidden enemy that is eroding accumulated wealth.

Take a look at Doug Short’s chart above of the S&P 500’s return since the 2000 high, both before and after adjusting for inflation. The red line shows the impact of inflation on the S&P 500 – the benchmark is actually flat over the past 13 years.  Currently America’s annual inflation rate is 1.36% which is low compared to peak inflation in March 1980 at 14.76%. Think 15% inflation is uncomfortable? Don’t move to Syria where inflation is running 49.5%.

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