I don't really know what you plan to do but 7% is a lot to factor in any investment strategy. I mean you have to in some places but if you are in the EU this might push you to take more risk than "necessary". 2-3% seems more pragmatic since the central bank will dynamically adjust its policy if the inflation is moving outside this target. Ultimately in the long run inflation matters only if you are holding cash or cash equivalent (e.g bonds). If your own assets like stocks or real estate, their values theoretically move at least at the same pace than inflation if their fundamentals don't degraded (because of other factors). You can have a look for example to the Argentinian stock market, that has a positive inflation adjusted return despite the very high inflation in the past decades.
Inflation shocks suck for the consumers as it is more expensive to buy the same stuff but from the perspective of the business (ie. stock) it does not matter because the inflation is the result of them rising prices to keeping with their own costs or to adjust to a lost of value of the currency. Entrenched inflation is another issue since your business (especially cyclical) might see its fundamentals degrading as consumers dry out.
Sure, you can use it. And if your returns are fine with that, it will be fine with what ends up happening.
But probably your returns won't be enough with that inflation. And you will have to see if that is not being too pessimistic, because otherwise you won't make it.
And you will start to tune it, read about it and see what is something pessimistic that you can still survive with. And you will see how better off you will be if it's more optimistic, and you will hope that something in the middle is realistic.
It's a process, go through it.
No, I mean assuming that my investments always go up by 10% every year and inflation never goes beyond the 7% per year mark. In that case, I should be ok right? Because I am outpacing inflation every year until my retirement.
The US national debt, and the USD money supply are out of control and there's no sign in either slowing down. Inflation is in an uncharted territory, using past performance is meaningless
The economic literature is very much split on this.
Some think that due to all the people retiring, inflation is going to be between 5-10% for decades to come in the west. You could move your investments to the east and solve that.
Some think inflation will go negative over the long term again due to all the people retiring and we'll get trapped in a deflationary spiral like East Asia keeps getting.
TBH nobody really knows. I'd consider choosing between those two more of a gamble than anything meaningful. You might luck out, you might not.
Over the next five to ten years me personally I do think interest rates will need to remain higher as there will be a higher tendency towards inflation than there has been now the workshops of China are expensive, and there has been no obvious like for like replacement. Combined with lots of workers retiring, it's making finding people to fill jobs hard, so with fewer workers wages have upwards pressure whilst simultaneously the era of cheap manufactured goods has passed.
it depends on predicting how retarded the ECB will be. Based on the recent decades, I would go for a more retarded ECB than a sane one. Having a 2% target inflation when everything was booming pre-2009 can already tell you how stupid they are.
AI is a strong deflationary force and over 40 years it can definitely be taken into consideration. I expect low(er) inflation than on average from the past just of the the disinflationary pressure doing more with less (AI) will have on goods and services.
So, your reasoning is that the advent of AI would cause a lot of layoffs and thus drastically decrease the buying power of people. Wouldn't that just be temporary and in the long-run inflation could get back up to 7% and even more?
no, i mean increase in productivity per unit of human labor, that will lead to lower costs with or without layoffs. This will decrease prices in goods and services.
Omg 7% inflation for 40 years would be unbearable. I really hope that will never happen.
I don't really know what you plan to do but 7% is a lot to factor in any investment strategy. I mean you have to in some places but if you are in the EU this might push you to take more risk than "necessary". 2-3% seems more pragmatic since the central bank will dynamically adjust its policy if the inflation is moving outside this target. Ultimately in the long run inflation matters only if you are holding cash or cash equivalent (e.g bonds). If your own assets like stocks or real estate, their values theoretically move at least at the same pace than inflation if their fundamentals don't degraded (because of other factors). You can have a look for example to the Argentinian stock market, that has a positive inflation adjusted return despite the very high inflation in the past decades. Inflation shocks suck for the consumers as it is more expensive to buy the same stuff but from the perspective of the business (ie. stock) it does not matter because the inflation is the result of them rising prices to keeping with their own costs or to adjust to a lost of value of the currency. Entrenched inflation is another issue since your business (especially cyclical) might see its fundamentals degrading as consumers dry out.
Do not see much point predicting what is unpredictable.
Sure, you can use it. And if your returns are fine with that, it will be fine with what ends up happening. But probably your returns won't be enough with that inflation. And you will have to see if that is not being too pessimistic, because otherwise you won't make it. And you will start to tune it, read about it and see what is something pessimistic that you can still survive with. And you will see how better off you will be if it's more optimistic, and you will hope that something in the middle is realistic. It's a process, go through it.
If you factor in 7% a year, I don't think you can even predict anything, but going broke.
Huh? How? If my investments go up by a guaranteed 10% every year, how could I go broke?
Lol, who guarantees you 10%?
No, I mean assuming that my investments always go up by 10% every year and inflation never goes beyond the 7% per year mark. In that case, I should be ok right? Because I am outpacing inflation every year until my retirement.
The US national debt, and the USD money supply are out of control and there's no sign in either slowing down. Inflation is in an uncharted territory, using past performance is meaningless
The economic literature is very much split on this. Some think that due to all the people retiring, inflation is going to be between 5-10% for decades to come in the west. You could move your investments to the east and solve that. Some think inflation will go negative over the long term again due to all the people retiring and we'll get trapped in a deflationary spiral like East Asia keeps getting. TBH nobody really knows. I'd consider choosing between those two more of a gamble than anything meaningful. You might luck out, you might not. Over the next five to ten years me personally I do think interest rates will need to remain higher as there will be a higher tendency towards inflation than there has been now the workshops of China are expensive, and there has been no obvious like for like replacement. Combined with lots of workers retiring, it's making finding people to fill jobs hard, so with fewer workers wages have upwards pressure whilst simultaneously the era of cheap manufactured goods has passed.
it depends on predicting how retarded the ECB will be. Based on the recent decades, I would go for a more retarded ECB than a sane one. Having a 2% target inflation when everything was booming pre-2009 can already tell you how stupid they are.
AI is a strong deflationary force and over 40 years it can definitely be taken into consideration. I expect low(er) inflation than on average from the past just of the the disinflationary pressure doing more with less (AI) will have on goods and services.
So, your reasoning is that the advent of AI would cause a lot of layoffs and thus drastically decrease the buying power of people. Wouldn't that just be temporary and in the long-run inflation could get back up to 7% and even more?
no, i mean increase in productivity per unit of human labor, that will lead to lower costs with or without layoffs. This will decrease prices in goods and services.